UMD ECON 200 - Demand Curve Shifters

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• Demand Curve Shifters- determinants of demand• Normal good- a good that is positively related to income• an increase in income causes increase in demand at each prices. • shifting the D curve to the right• and vice-versa. a decrease in income causes a decrease in demand • inferior good- negatively related to income• Shifts & movements of curvesan increase in income causes a decrease in demand at each price.• shifting the D curve to the left• and vice-versa. A decrease in income causes an increase in demand and the D curve to shift to the right. • ex: Bus service & staple foods • Demand curve shifter: price of related goods• complements- if an increase in the price of once causes a fall in demand for the other• Computers & software • bagels and cream cheese• substitutes- if an increase in the price of one causes and increase in demand for the other• Coke and Pepsi, bus and subway• Tastes• Anything that causes a shift in taste TOWARD a good• Expectations• if people expect their incomes to rise, their demand for meal at expensive restaurants may increase now• Quantity Supplied• price causes a movement along the S curve• Supply Curve Shifters- determinants of supply• increase in supply = rightward shift of supply curve• Input prices• ex- wages and price of raw materials• a fall in the input price makes production more profitable at each output prices. • so firms • technology• determines how much inputs are required to produce a unit of output• a cost-saving• an in• number of sellers• an increase in the number of sellers increases the supply• expectations• a firm expects the price of the good it sells to rise in the future• it may reduce supply• Steps1. decide whether the even shifts S or D curve or both2. decide in which direction the curve shifts3. use supply demand diagram to see how the shift change equilibrium P and equilibrium Q• EQ quantity increases ambiguous price• if supply increases more then demand, P falls• if demand increases more than supply, P

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# UMD ECON 200 - Demand Curve Shifters

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