Econ 102 Buckley Lesson 04 Note Set Lesson 4 1 Changes in Demand Change in Demand A rightward or leftward shift of the entire demand curve caused by a change in Ceteris Paribus Conditions of Demand Common occurrences that cause demand to shift Changes in Consumer s Prices of Consumer Number of Expansion of Demand shift in the demand curve Also known as an in demand Contraction of Demand shift in the demand curve Also known as a in demand Normal Good A good where when consumers get richer demand and when consumers get poorer demand Inferior Good A good where when consumers get richer demand and when consumers get poorer demand Complements Two goods with the relationship that when the price of Good A rises the demand for Good B and when the price of Good A falls the demand for Good B Page 1 of 6 Econ 102 Buckley Lesson 04 Note Set Substitutes Two goods with the relationship that when the price of Good X rises the demand for Good Y and when the price of Good X falls the demand for Good Y Consumer Expectations Changes in consumer expectations have the following effects If the Future Price of a good is expected to be higher than previously thought then the demand today will If the Future Price of a good is expected to be lower than previously thought then the demand today will Number of Consumers Changes in the number of consumers have the following effects At any given price if the size of the population of consumers grows then the demand At any given price if the size of the population of consumers falls then the demand will will Willingness to Pay Changes in the willingness to pay for a good will have the following effects If willingness to pay rises then demand If willingness to pay falls then demand Expansions of Demand can be caused by Contractions of Demand can be caused by in income for a in income for a normal good inferior good substitute in income for an in income for an in the price of a in the price of a in the price of a in the price of a complement Expecting the price to complement Expecting the price to in the future in the future in the number of in the number of normal good inferior good substitute consumers in WTP in WTP consumers Summary A change in the price of Good X means we get a change in of Good X We do not need to redraw the demand curve A change in income prices of other goods expectations etc will cause a change in demand and thus we will need to the demand curve Page 2 of 6 Econ 102 Buckley Lesson 04 Note Set Lesson 4 2 Changes in Supply Change in Supply A rightward or leftward shift of the entire supply curve caused by a change in Ceteris Paribus Conditions of Supply Common occurrences that cause supply to shift Changes in prices Production Producer Number of Expansion of Supply shift in the supply curve Also known as an in supply Contraction of Supply shift in the supply curve Also known as a in supply Warning For demand and supply an expansion is a shift For demand and supply a contraction is a shift For demand an expansion is an while for supply it is a shift For demand a contraction is an while for supply it is a shift Input Prices The price of the inputs into a production process This includes the price of materials and wages Changes in an input price will have the following effects If an input price rises then supply If an input price falls then supply Production Technology Changes in production technology will have the following effects If production technology improves then supply If production technology worsens or is restricted then supply Page 3 of 6 Econ 102 Buckley Lesson 04 Note Set Producer Expectations Changes in producer expectations have the following effects If the Future Price of a good is expected to be higher than previously thought then the supply today will as sellers hold off on selling to wait until the future If the Future Price of a good is expected to be lower than previously thought then the supply today will as sellers try today instead of in the future Number of Suppliers Changes in number of firms will have the following effects If additional suppliers enter the market then supply will If suppliers exit the market then supply will Input Prices If the marginal costs or opportunity costs of production change then there will be the following effects If marginal costs or opportunity costs rise the supply If marginal costs or opportunity costs fall the supply Expansions of Supply can be caused by Contractions of Supply can be caused by in input price in production in input price production technology technology of Marginal Costs in Expected Future of Marginal Costs in Expected Future in the Number of in the Number of Price Firms Price Firms Summary There is a difference between increasing marginal cost and an increase in marginal cost An increase in marginal cost refers to an shift of the entire cost Increasing marginal cost refers to the of MC and supply schedule A change in the price of Good X means we get a change in of Good X We do not need to redraw the supply curve A change in input prices production technology producer expectations etc will cause a change and thus we will need to redraw the supply curve Page 4 of 6 Econ 102 Buckley Lesson 04 Note Set 3 Determine the impact on or Lesson 4 3 Comparative Statics Comparative Statics Steps 1 Start in 2 Change a determining factor 4 Finish up in a new An expansion of supply will cause price to and quantity to A contraction of demand will cause price to and quantity to Page 5 of 6 Econ 102 Buckley Lesson 04 Note Set A contraction of supply will cause price to and quantity to An expansion of demand will cause price to and quantity to When there both demand and supply change Price change Contraction of Supply Net Effect Quantity Change Expansion of Demand When both demand and supply of a particular good change we can predict the net effect on price or quantity Price Gouging A pejorative term for when suppliers raise price above what is deemed fair If price increases are prevented then a will likely occur Page 6 of 6