ARHS 1003 1st Edition Lecture 8 Outline of Last Lecture I. Calculating Opportunity Cost Outline of Current Lecture II. Demand and SupplyIII. Demand curve shiftersIV. SupplyCurrent LectureDemand curve shifters ● Increase in number of buyers - more buyers in the market means the demand curve will shift to the right, with fewer buyers it will shift to the left. ● Increase in income - tends to shift demand curve right in the case of normal goods.● Compliments - Two goods are complements if an increase in the price of one causes a fall in demand for the other. e.g. computers and software● Substitutes ● Taste - anything that causes a shift in tastes toward a good will increase demand for thatgood and shift its D curve to the right ● e.g. the atkins diet became popular in the 90’s and shifted the D curve for eggs towards the right. ● Expectations - expectations affect consumers buying decisions.e.g. if you expect your income to increase you are more likely to buy more - or if the economy is going bad then people tend to spend less due to fears of losing a their job.● Price only causes a movement ALONG the D curveWhereas number of buyers, income, price ofrelated goods, tastes, and expectations all aredemand curve shifters.Demand curve shifters:Examples: What happens to musicdownloads if,A. The price of Ipods falls B. The price of music downloads fallsC. The price of CD’s fallsThe 3 possible answers are1. The curve shifts to the right2. The curve shifts to the left3. The curve does not shift (although usuallythis means there will be movement along theline/curve.A. The price of Ipods falls. a. This means that the demand curvefor music downloads will shift rightbecause Ipods and music downloadsare complementary goods. B. The price of music downloads fallsa. Because this is price related thedemand curve does not shift becauseas the price goes down the demandgoes up meaning that the point on thecurve will move down and to the right. C. The of CD’s fallsa. Because CD’s and Musicdownloads are substitutes, this willshift the demand curve inwards.Supply:● Supply - the quantity supplied of and good isthe amount that sellers are willing and able tosell. ● Law of supply: the claim that the quantitysupplied of a good rises when the price of thegood rises. (quantity rises when price rises) opposite of demand. Supply schedule Price of lattes $quantity of lattes supplied000132639412515618● The reason a seller does not produce more than 3 lattes at $1 is because of the cost of production, a fourth latte would make him lose money.● The logical thing we can say about the cost of production is that as you expand production the marginal cost increases● Marginal cost of production increases so in order to expand production, you will have to do something that will cost money, new equipment, employees ect. ● You can expand production until cost of production per unit reaches the price per
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