Download Changes in Price due to Change in Supply and Demand

Changes in
Price due to
Change in
Supply and
Demand
Remember
1.
When excess demand (shortage) occurs firms
will increase prices ---- this will cause firms to
produce more (law of supply) until demand
and supply are equal.
2. When excess supply (surplus) occurs firms will be
forced to cut prices ---- falling prices will cause
quantity demanded to rise (law of demand) until
demand and supply are equal.
Price changes occur because of
disequilibrium --- shifts in the entire supply or
demand curve will cause changes in price.
Demand Curve Shifts
1. Consumer income
2. Tastes and
preferences
3. Change is price of
substitute good
4. Change in price of
complementary
good
5. Change in
expectations about
price
6. Change in # of
consumers
Changes in Supply
New technology– makes production
cheaper and more efficient
 lowers the cost of production
 Moves the supply curve to the right–
increasing supply!
1.
350
300
250
200
demanded
150
supplied
100
50
0
0
50
100
150
200
250
300
2. Costs of Production – an increase in the
cost of production (raw materials, labor, or
new taxes) can cause a change in supply.
Example: cost of tomato sauce and
cheese increase – this will cause fewer
pizzas to be produced.
Causes the supply curve to shift to the left!
350
300
250
200
demanded
150
supplied
100
50
0
0
50
100
150
200
250
300
Changes in Demand
Fad- sudden and dramatic increase in demand
for a product
ex: gluten-free pizza crust
Fads cause the demand curve to shift to the rightthe space in between the original demand curve
and the new curve creates a shortage---- causes
350
prices to rise.
300
250
200
demanded
150
supplied
100
50
0
0
50
100
150
200
250
300