What Determines The Price And Quantity Produced Of Most Goods And Services?

Affiliate 3. Demand and Supply

3.2 Shifts in Need and Supply for Goods and Services

Learning Objectives

Past the terminate of this department, you will be able to:

• Identify factors that affect demand
• Graph demand curves and demand shifts
• Identify factors that affect supply
• Graph supply curves and supply shifts

The previous module explored how cost affects the quantity demanded and the quantity supplied. The effect was the demand bend and the supply bend. Price, withal, is not the only affair that influences demand. Nor is it the just thing that influences supply. For instance, how is need for vegetarian food affected if, say, wellness concerns cause more than consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers discover several new diamond mines? What are the major factors, in addition to the price, that influence demand or supply?

Visit this website to read a brief note on how marketing strategies tin influence supply and demand of products.

What Factors Affect Demand?

We defined demand as the amount of some product a consumer is willing and able to purchase at each toll. That suggests at least ii factors in addition to price that bear upon need. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither demand nor want something, you will non buy information technology. Ability to purchase suggests that income is of import. Professors are usually able to afford amend housing and transportation than students, because they take more income. Prices of related goods tin can affect demand also. If you demand a new car, the price of a Honda may impact your demand for a Ford. Finally, the size or limerick of the population can affect need. The more children a family has, the greater their demand for wear. The more driving-historic period children a family has, the greater their demand for car insurance, and the less for diapers and baby formula.

These factors matter both for need by an private and demand by the market equally a whole. Exactly how practise these various factors affect need, and how exercise we show the effects graphically? To answer those questions, nosotros demand the ceteris paribus assumption.

The Ceteris Paribus Assumption

A demand curve or a supply curve is a relationship between two, and just two, variables: quantity on the horizontal axis and cost on the vertical centrality. The assumption backside a demand curve or a supply curve is that no relevant economical factors, other than the production'southward price, are changing. Economists call this assumption ceteris paribus, a Latin phrase meaning "other things being equal." Any given need or supply bend is based on the ceteris paribus assumption that all else is held equal. A demand bend or a supply bend is a relationship between ii, and only two, variables when all other variables are kept constant. If all else is non held equal, then the laws of supply and demand will not necessarily hold, as the following Clear It Upwardly characteristic shows.

When does ceteris paribus use?

Ceteris paribus is typically applied when nosotros await at how changes in price affect demand or supply, but ceteris paribus tin can exist practical more generally. In the real world, need and supply depend on more than factors than just price. For example, a consumer'south demand depends on income and a producer'south supply depends on the cost of producing the production. How tin can nosotros clarify the consequence on demand or supply if multiple factors are irresolute at the aforementioned time—say price rises and income falls? The answer is that we examine the changes 1 at a time, assuming the other factors are held constant.

For example, we can say that an increment in the price reduces the amount consumers will buy (bold income, and annihilation else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to purchase (assuming toll, and anything else that affects demand, is unchanged). This is what the ceteris paribus assumption really ways. In this detail case, after nosotros analyze each factor separately, we can combine the results. The amount consumers buy falls for ii reasons: first because of the higher price and second considering of the lower income.

How Does Income Bear on Need?

Permit'due south utilise income as an example of how factors other than price affect demand. Figure i shows the initial need for automobiles as D₀. At point Q, for instance, if the price is $twenty,000 per car, the quantity of cars demanded is 18 1000000. D₀ likewise shows how the quantity of cars demanded would change every bit a result of a college or lower toll. For example, if the price of a automobile rose to $22,000, the quantity demanded would subtract to 17 1000000, at point R.

The original demand curve D₀, similar every demand bend, is based on the ceteris paribus assumption that no other economically relevant factors change. At present imagine that the economic system expands in a style that raises the incomes of many people, making cars more affordable. How will this affect demand? How can we evidence this graphically?

Return to Figure one. The cost of cars is still $20,000, but with higher incomes, the quantity demanded has now increased to twenty 1000000 cars, shown at indicate Due south. As a upshot of the college income levels, the demand curve shifts to the right to the new demand bend D_ane, indicating an increase in demand. Tabular array 4 shows clearly that this increased demand would occur at every price, non but the original 1.

Figure 1. Shifts in Demand: A Car Case. Increased need means that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D₀ to D₁. Decreased demand means that at every given price, the quantity demanded is lower, and so that the demand bend shifts to the left from D₀ to D₂.

Toll	Decrease to D2	Original Quantity Demanded D0	Increase to D1
$16,000	17.vi million	22.0 million	24.0 million
$xviii,000	sixteen.0 1000000	xx.0 million	22.0 one thousand thousand
$20,000	14.4 million	xviii.0 meg	20.0 million
$22,000	thirteen.6 million	17.0 1000000	19.0 1000000
$24,000	13.two million	16.5 million	18.5 million
$26,000	12.8 million	sixteen.0 million	xviii.0 million
Tabular array 4. Price and Demand Shifts: A Machine Example

Now, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes. In this instance, the subtract in income would lead to a lower quantity of cars demanded at every given price, and the original demand curve D₀ would shift left to D₂. The shift from D₀ to D_ii represents such a decrease in demand: At whatever given price level, the quantity demanded is now lower. In this example, a price of $20,000 means xviii million cars sold along the original demand bend, but merely xiv.4 million sold after need roughshod.

When a need curve shifts, it does not mean that the quantity demanded past every individual buyer changes by the same amount. In this example, non everyone would have higher or lower income and not everyone would buy or not buy an additional auto. Instead, a shift in a demand curve captures an pattern for the market as a whole.

In the previous section, nosotros argued that higher income causes greater demand at every toll. This is true for most appurtenances and services. For some—luxury cars, vacations in Europe, and fine jewelry—the issue of a rise in income can exist especially pronounced. A production whose demand rises when income rises, and vice versa, is called a normal skillful. A few exceptions to this pattern do be. As incomes rising, many people volition buy fewer generic make groceries and more name brand groceries. They are less probable to buy used cars and more likely to buy new cars. They will be less likely to rent an flat and more likely to own a home, and so on. A production whose demand falls when income rises, and vice versa, is called an junior good. In other words, when income increases, the need bend shifts to the left.

Other Factors That Shift Need Curves

Income is not the only factor that causes a shift in demand. Other things that change need include tastes and preferences, the composition or size of the population, the prices of related goods, and fifty-fifty expectations. A change in whatever one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a subtract) of the original demand bend. Let's look at these factors.

Changing Tastes or Preferences

From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beefiness vicious from 77 pounds per year to 54 pounds per year, co-ordinate to the U.S. Section of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every cost: that is, they shift the demand bend for that expert, rightward for chicken and leftward for beefiness.

Changes in the Composition of the Population

The proportion of elderly citizens in the Usa population is rising. Information technology rose from nine.eight% in 1970 to 12.6% in 2000, and will be a projected (by the U.S. Demography Bureau) 20% of the population by 2030. A lodge with relatively more children, like the The states in the 1960s, will take greater need for appurtenances and services like tricycles and solar day care facilities. A society with relatively more elderly persons, every bit the United States is projected to have by 2030, has a higher need for nursing homes and hearing aids. Similarly, changes in the size of the population tin can affect the demand for housing and many other goods. Each of these changes in need volition be shown every bit a shift in the need curve.

The demand for a production can also be affected past changes in the prices of related appurtenances such every bit substitutes or complements. A substitute is a skilful or service that can be used in identify of some other practiced or service. As electronic books, like this one, become more bachelor, you would await to see a decrease in demand for traditional printed books. A lower price for a substitute decreases need for the other production. For example, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the law of need). Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops. A higher price for a substitute good has the contrary event.

Other appurtenances are complements for each other, pregnant that the goods are often used together, because consumption of 1 good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the v-way combination of salary, lettuce, love apple, mayonnaise, and bread. If the price of golf clubs rises, since the quantity demanded of golf clubs falls (because of the constabulary of need), demand for a complement good similar golf balls decreases, too. Similarly, a college price for skis would shift the demand curve for a complement proficient similar ski resort trips to the left, while a lower price for a complement has the reverse event.

Changes in Expectations nigh Future Prices or Other Factors that Touch Need

While it is clear that the price of a good affects the quantity demanded, it is also true that expectations about the future toll (or expectations nearly tastes and preferences, income, and so on) can affect demand. For example, if people hear that a hurricane is coming, they may rush to the store to buy flashlight batteries and bottled water. If people learn that the cost of a practiced like coffee is likely to rise in the futurity, they may caput for the store to stock upwardly on coffee now. These changes in demand are shown as shifts in the bend. Therefore, a shift in demand happens when a modify in some economic gene (other than price) causes a dissimilar quantity to be demanded at every toll. The following Piece of work Information technology Out feature shows how this happens.

Shift in Demand

A shift in need means that at any cost (and at every price), the quantity demanded volition exist different than it was earlier. Following is an example of a shift in demand due to an income increase.

Step 1. Draw the graph of a need curve for a normal good like pizza. Pick a price (like P₀). Identify the corresponding Q₀. An example is shown in Figure two.

Effigy 2. Demand Curve. The need curve tin can be used to identify how much consumers would buy at whatsoever given price.

Step 2. Suppose income increases. As a event of the modify, are consumers going to buy more or less pizza? The answer is more than. Draw a dotted horizontal line from the called price, through the original quantity demanded, to the new point with the new Q_one. Draw a dotted vertical line down to the horizontal centrality and characterization the new Q_one. An example is provided in Figure three.

Effigy 3. Need Curve with Income Increase. With an increase in income, consumers will buy larger quantities, pushing demand to the correct.

Step 3. Now, shift the bend through the new point. You will come across that an increase in income causes an up (or rightward) shift in the need curve, so that at any price the quantities demanded will be higher, as shown in Figure 4.

Figure 4. Demand Curve Shifted Correct. With an increment in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand bend to shift right.

Summing Up Factors That Change Need

Half dozen factors that can shift need curves are summarized in Figure v. The direction of the arrows indicates whether the demand curve shifts represent an increment in demand or a decrease in demand. Discover that a alter in the toll of the good or service itself is not listed amid the factors that can shift a demand curve. A alter in the price of a proficient or service causes a motion along a specific need curve, and it typically leads to some change in the quantity demanded, but information technology does not shift the demand curve.

Effigy 5. Factors That Shift Demand Curves. (a) A list of factors that tin crusade an increase in demand from D₀ to D_one. (b) The same factors, if their management is reversed, can crusade a decrease in demand from D₀ to D₁.

When a demand curve shifts, it will then intersect with a given supply curve at a different equilibrium price and quantity. Nosotros are, nevertheless, getting ahead of our story. Before discussing how changes in need tin affect equilibrium price and quantity, nosotros offset demand to discuss shifts in supply curves.

How Production Costs Affect Supply

A supply curve shows how quantity supplied volition change equally the price rises and falls, assuming ceteris paribus then that no other economically relevant factors are irresolute. If other factors relevant to supply practice alter, and then the entire supply curve volition shift. Merely as a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every cost.

In thinking about the factors that affect supply, remember what motivates firms: profits, which are the divergence between revenues and costs. Appurtenances and services are produced using combinations of labor, materials, and mechanism, or what we call inputs or factors of product. If a firm faces lower costs of production, while the prices for the expert or service the firm produces remain unchanged, a firm's profits become up. When a house'due south profits increase, it is more motivated to produce output, since the more information technology produces the more than turn a profit it volition earn. So, when costs of production autumn, a firm will tend to supply a larger quantity at whatever given toll for its output. This can exist shown past the supply curve shifting to the right.

Take, for example, a messenger company that delivers packages around a city. The visitor may detect that buying gasoline is one of its main costs. If the price of gasoline falls, then the visitor will observe it can deliver messages more cheaply than before. Since lower costs represent to higher profits, the messenger company may at present supply more of its services at any given price. For example, given the lower gasoline prices, the company can now serve a greater surface area, and increase its supply.

Conversely, if a business firm faces higher costs of production, then it will earn lower profits at any given selling cost for its products. As a result, a higher cost of production typically causes a firm to supply a smaller quantity at whatsoever given price. In this case, the supply curve shifts to the left.

Consider the supply for cars, shown by bend S₀ in Figure vi. Signal J indicates that if the toll is $xx,000, the quantity supplied will be 18 million cars. If the price rises to $22,000 per car, ceteris paribus, the quantity supplied will rise to 20 1000000 cars, every bit point K on the Southward₀ curve shows. The same information can exist shown in table form, equally in Table 5.

Figure 6. Shifts in Supply: A Car Case. Decreased supply means that at every given price, the quantity supplied is lower, and then that the supply curve shifts to the left, from S₀ to S_one. Increased supply means that at every given price, the quantity supplied is higher, and so that the supply bend shifts to the right, from South₀ to South_two.

Price	Subtract to S1	Original Quantity Supplied South0	Increase to Sii
$sixteen,000	10.5 one thousand thousand	12.0 1000000	xiii.two million
$18,000	13.5 million	xv.0 one thousand thousand	sixteen.5 million
$20,000	16.5 1000000	xviii.0 1000000	nineteen.8 million
$22,000	18.5 million	twenty.0 million	22.0 million
$24,000	19.5 one thousand thousand	21.0 one thousand thousand	23.1 million
$26,000	20.5 meg	22.0 meg	24.2 million
Table 5. Price and Shifts in Supply: A Car Instance

At present, imagine that the price of steel, an important ingredient in manufacturing cars, rises, and so that producing a auto has go more expensive. At any given cost for selling cars, auto manufacturers will react by supplying a lower quantity. This can be shown graphically as a leftward shift of supply, from S₀ to Due south₁, which indicates that at any given cost, the quantity supplied decreases. In this example, at a cost of $twenty,000, the quantity supplied decreases from 18 one thousand thousand on the original supply curve (S₀) to 16.v meg on the supply bend South_one, which is labeled as point Fifty.

Conversely, if the toll of steel decreases, producing a automobile becomes less expensive. At any given price for selling cars, motorcar manufacturers can now expect to earn higher profits, then they will supply a college quantity. The shift of supply to the right, from S₀ to S₂, ways that at all prices, the quantity supplied has increased. In this case, at a price of $xx,000, the quantity supplied increases from xviii million on the original supply curve (S₀) to 19.8 meg on the supply bend S₂, which is labeled G.

Other Factors That Affect Supply

In the instance above, we saw that changes in the prices of inputs in the production process will bear upon the price of production and thus the supply. Several other things affect the cost of production, too, such as changes in weather condition or other natural conditions, new technologies for production, and some government policies.

The cost of production for many agricultural products will be affected by changes in natural conditions. For example, in 2014 the Manchurian Patently in Northeastern China, which produces most of the land's wheat, corn, and soybeans, experienced its most astringent drought in 50 years. A drought decreases the supply of agronomical products, which means that at any given price, a lower quantity volition exist supplied; conversely, especially good atmospheric condition would shift the supply curve to the right.

When a firm discovers a new applied science that allows the firm to produce at a lower toll, the supply curve will shift to the correct, as well. For example, in the 1960s a major scientific effort nicknamed the Green Revolution focused on breeding improved seeds for bones crops similar wheat and rice. Past the early 1990s, more than than ii-thirds of the wheat and rice in low-income countries around the earth was grown with these Green Revolution seeds—and the harvest was twice equally high per acre. A technological improvement that reduces costs of production will shift supply to the right, so that a greater quantity will exist produced at whatever given price.

Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a taxation on alcoholic beverages that collects about $viii billion per year from producers. Taxes are treated as costs by businesses. Higher costs decrease supply for the reasons discussed to a higher place. Other examples of policy that tin can bear upon price are the wide array of government regulations that crave firms to spend coin to provide a cleaner environment or a safer workplace; complying with regulations increases costs.

A government subsidy, on the other hand, is the contrary of a taxation. A subsidy occurs when the authorities pays a firm directly or reduces the firm's taxes if the business firm carries out certain actions. From the business firm's perspective, taxes or regulations are an additional cost of production that shifts supply to the left, leading the house to produce a lower quantity at every given price. Government subsidies reduce the toll of production and increment supply at every given price, shifting supply to the right. The following Piece of work It Out feature shows how this shift happens.

Shift in Supply

We know that a supply curve shows the minimum price a business firm volition accept to produce a given quantity of output. What happens to the supply curve when the cost of production goes up? Post-obit is an instance of a shift in supply due to a production cost increment.

Step 1. Draw a graph of a supply bend for pizza. Pick a quantity (similar Q₀). If y'all draw a vertical line up from Q₀ to the supply curve, you will see the toll the firm chooses. An instance is shown in Figure 7.

Effigy 7. Supply Curve. The supply curve tin exist used to show the minimum price a house volition accept to produce a given quantity of output.

Stride 2. Why did the firm choose that price and not some other? One fashion to think nearly this is that the toll is composed of two parts. The first part is the average cost of product, in this instance, the cost of the pizza ingredients (dough, sauce, cheese, pepperoni, and and then on), the cost of the pizza oven, the rent on the shop, and the wages of the workers. The second role is the firm's desired profit, which is determined, among other factors, past the profit margins in that particular business organization. If you add these two parts together, you get the toll the firm wishes to charge. The quantity Q0 and associated price P0 give yous one indicate on the firm's supply curve, every bit shown in Figure eight.

Figure viii. Setting Prices. The price of production and the desired profit equal the cost a firm will set for a product.

Stride 3. Now, suppose that the cost of production goes up. Perhaps cheese has become more expensive by $0.75 per pizza. If that is true, the firm will want to raise its cost past the amount of the increment in cost ($0.75). Draw this indicate on the supply bend directly above the initial betoken on the bend, just $0.75 higher, every bit shown in Figure 9.

Effigy ix. Increasing Costs Leads to Increasing Toll. Because the cost of production and the desired turn a profit equal the price a firm will set for a product, if the cost of production increases, the toll for the product volition also need to increment.

Pace 4. Shift the supply curve through this point. You volition come across that an increase in cost causes an upwardly (or a leftward) shift of the supply curve so that at any price, the quantities supplied will be smaller, as shown in Figure 10.

Figure 10. Supply Curve Shifts. When the price of product increases, the supply bend shifts upwardly to a new cost level.

Summing Up Factors That Change Supply

Changes in the cost of inputs, natural disasters, new technologies, and the impact of authorities decisions all touch the cost of product. In plough, these factors affect how much firms are willing to supply at any given price.

Figure xi summarizes factors that change the supply of goods and services. Notice that a alter in the toll of the production itself is not amidst the factors that shift the supply curve. Although a alter in price of a practiced or service typically causes a change in quantity supplied or a movement along the supply curve for that specific expert or service, it does not cause the supply curve itself to shift.

Figure xi. Factors That Shift Supply Curves. (a) A list of factors that can cause an increase in supply from S₀ to Due south₁. (b) The same factors, if their direction is reversed, tin can cause a decrease in supply from S₀ to S_i.

Considering demand and supply curves appear on a two-dimensional diagram with only cost and quantity on the axes, an unwary company to the country of economics might exist fooled into believing that economics is about only four topics: demand, supply, cost, and quantity. Nevertheless, need and supply are really "umbrella" concepts: demand covers all the factors that bear upon demand, and supply covers all the factors that touch on supply. Factors other than cost that affect demand and supply are included past using shifts in the demand or the supply curve. In this way, the ii-dimensional need and supply model becomes a powerful tool for analyzing a wide range of economic circumstances.

Key Concepts and Summary

Economists often use the ceteris paribus or "other things being equal" assumption: while examining the economic bear on of one outcome, all other factors remain unchanged for the purpose of the analysis. Factors that tin can shift the demand bend for goods and services, causing a different quantity to be demanded at whatever given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations well-nigh future weather condition and prices. Factors that can shift the supply bend for goods and services, causing a different quantity to be supplied at whatever given price, include input prices, natural weather condition, changes in engineering, and government taxes, regulations, or subsidies.

Self-Bank check Questions

1. Why do economists utilise the ceteris paribus assumption?
2. In an analysis of the market for pigment, an economist discovers the facts listed below. State whether each of these changes will touch supply or demand, and in what direction.
   1. There accept recently been some of import cost-saving inventions in the technology for making paint.
   2. Paint is lasting longer, and so that property owners demand not repaint as often.
   3. Considering of severe hailstorms, many people demand to repaint at present.
   4. The hailstorms damaged several factories that make pigment, forcing them to close downwards for several months.
3. Many changes are affecting the market place for oil. Predict how each of the following events volition affect the equilibrium price and quantity in the market place for oil. In each case, land how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
   1. Cars are becoming more than fuel efficient, and therefore get more miles to the gallon.
   2. The winter is exceptionally common cold.
   3. A major discovery of new oil is made off the coast of Norway.
   4. The economies of some major oil-using nations, like Japan, ho-hum downward.
   5. A war in the Middle East disrupts oil-pumping schedules.
   6. Landlords install boosted insulation in buildings.
   7. The toll of solar energy falls dramatically.
   8. Chemical companies invent a new, popular kind of plastic made from oil.

Review Questions

1. When analyzing a market, how do economists deal with the trouble that many factors that affect the market are changing at the same fourth dimension?
2. Name some factors that tin cause a shift in the need curve in markets for goods and services.
3. Name some factors that can cause a shift in the supply curve in markets for goods and services.

Critical Thinking Questions

1. Consider the need for hamburgers. If the price of a substitute expert (for instance, hot dogs) increases and the price of a complement good (for case, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.
2. How do you lot suppose the demographics of an aging population of "Baby Boomers" in the United States will affect the demand for milk? Justify your respond.
3. We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How volition that touch demand for the production in the nowadays? Can you show this graphically?
4. Suppose there is soda tax to adjourn obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Tin can you lot show this graphically? Hint: assume that the soda tax is nerveless from the sellers

Bug

1. Table 6 shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.
   

   Cost	Qd	Qs
   $120	50	36
   $150	forty	twoscore
   $180	32	48
   $210	28	56
   $240	24	70
   Tabular array 6. Demand and Supply for Bicycles

   1. What is the quantity demanded and the quantity supplied at a price of $210?
   2. At what toll is the quantity supplied equal to 48,000?
   3. Graph the demand and supply bend for bicycles. How tin you decide the equilibrium price and quantity from the graph? How tin can you lot determine the equilibrium price and quantity from the tabular array? What are the equilibrium price and equilibrium quantity?
   4. If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus be? If so, how big would the shortage or surplus be?
2. The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this effect? Sketch a demand and supply diagram and explain your reasoning for each.
   1. A rise in demand
   2. A fall in demand
   3. A rise in supply
   4. A fall in supply

References

Landsburg, Steven East. The Armchair Economist: Economic science and Everyday Life. New York: The Free Press. 2012. specifically Section 4: How Markets Piece of work.

National Chicken Council. 2015. "Per Capita Consumption of Poultry and Livestock, 1965 to Estimated 2015, in Pounds." Accessed April 13, 2015. http://world wide web.nationalchickencouncil.org/virtually-the-industry/statistics/per-capita-consumption-of-poultry-and-livestock-1965-to-estimated-2012-in-pounds/.

Wessel, David. "Kingdom of saudi arabia Fears $40-a-Barrel Oil, Besides." The Wall Street Periodical. May 27, 2004, p. 42. http://online.wsj.com/news/articles/SB108561000087822300.

Glossary

ceteris paribus

other things existence equal

complements

appurtenances that are often used together so that consumption of one good tends to enhance consumption of the other

factors of production

the combination of labor, materials, and machinery that is used to produce goods and services; besides called inputs

inferior good

a adept in which the quantity demanded falls every bit income rises, and in which quantity demanded rises and income falls

inputs

the combination of labor, materials, and machinery that is used to produce goods and services; also called factors of production

normal good

a skillful in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

shift in demand

when a alter in some economic cistron (other than price) causes a unlike quantity to be demanded at every toll

shift in supply

when a change in some economical factor (other than price) causes a dissimilar quantity to be supplied at every price

substitute

a good that can supersede some other to some extent, so that greater consumption of 1 good tin can mean less of the other

Solutions

Answers to Self-Check Questions

1. To go far easier to analyze complex problems. Ceteris paribus allows you to wait at the effect of one cistron at a fourth dimension on what it is yous are trying to analyze. When you have analyzed all the factors individually, you add the results together to get the final answer.
2. 1. An improvement in technology that reduces the cost of production will cause an increase in supply. Alternatively, you tin recollect of this as a reduction in price necessary for firms to supply any quantity. Either mode, this tin can be shown every bit a rightward (or down) shift in the supply curve.
   2. An improvement in product quality is treated every bit an increase in tastes or preferences, meaning consumers demand more paint at any toll level, so need increases or shifts to the right. If this seems counterintuitive, note that demand in the hereafter for the longer-lasting pigment will fall, since consumers are substantially shifting need from the future to the nowadays.
   3. An increase in need causes an increase in need or a rightward shift in the demand curve.
   4. Factory damage means that firms are unable to supply as much in the present. Technically, this is an increase in the toll of production. Either way you look at it, the supply bend shifts to the left.
3. 1. More fuel-efficient cars means there is less need for gasoline. This causes a leftward shift in the need for gasoline and thus oil. Since the demand curve is shifting down the supply bend, the equilibrium cost and quantity both fall.
   2. Cold weather increases the demand for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the need bend is shifting upwardly the supply bend, the equilibrium price and quantity both rise.
   3. A discovery of new oil volition make oil more than abundant. This can be shown as a rightward shift in the supply curve, which volition cause a decrease in the equilibrium price along with an increase in the equilibrium quantity. (The supply curve shifts down the demand bend so toll and quantity follow the law of demand. If price goes down, then the quantity goes up.)
   4. When an economy slows downward, information technology produces less output and demands less input, including energy, which is used in the product of virtually everything. A subtract in demand for energy will be reflected every bit a subtract in the demand for oil, or a leftward shift in demand for oil. Since the demand bend is shifting down the supply curve, both the equilibrium toll and quantity of oil will fall.
   5. Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply bend volition show a motion up the need curve, resulting in an increase in the equilibrium cost of oil and a decrease in the equilibrium quantity.
   6. Increased insulation will decrease the demand for heating. This leftward shift in the demand for oil causes a movement down the supply curve, resulting in a decrease in the equilibrium toll and quantity of oil.
   7. Solar energy is a substitute for oil-based energy. So if solar energy becomes cheaper, the demand for oil will decrease as consumers switch from oil to solar. The decrease in demand for oil will be shown every bit a leftward shift in the demand curve. Every bit the need curve shifts down the supply curve, both equilibrium price and quantity for oil will autumn.
   8. A new, pop kind of plastic volition increase the demand for oil. The increase in need volition exist shown as a rightward shift in demand, raising the equilibrium price and quantity of oil.

What Determines The Price And Quantity Produced Of Most Goods And Services?,

Source: https://opentextbc.ca/principlesofeconomics/chapter/3-2-shifts-in-demand-and-supply-for-goods-and-services/

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