Michele Pennala January 23, 2014 Economics Demand and Supply Curves Shifts vs. Movement Along 1.

. The factors that can cause shifts in demand are consumer tastes and preferences, market size, income, prices of related goods, and consumer expectations. 2. In order to explain the difference between movement along and shifts, the graph below is used to display a movement along. Each point plotted on this demand curve represents a specific combination of price and quantity demanded. The curve slopes downward, representing the greater quantity that consumers will buy at lower prices. For example, a company that sells bicycles uses a graph to show the demand and price ratio. As prices for bikes increases, quantity demanded decreases. As prices decrease, quantity demanded increases. A movement along the demand curve occurs when there is a change in price. Referred to as a change in quantity demanded, price changes lead to movement along the demand curve. $600 Price per Bicycle $500 $400 $300 $200 $100 0 1 2 3 4 5 6 Quantity Demanded (in thousands) 7 D1 Demand Curve

A shift in the demand curve is caused by a factor affecting demand other than a change in price. Shifts in demand are caused by factors such as consumer tastes and preferences, market size, income, prices of related goods, and consumer expectations. This causes the demand curve to shift to the right or left, rather than simply moving along the curve. For example, if after a passage of time a factor other than price causes an increase in demand for bicycles, the entire curve shifts to the right. It this factor happens to cause a decrease in demand, the entire curve shifts to the left. If a family wanted to purchase a bike, their income could be a determinant of demand. If their income was high, they have more money to spend and can purchase the bike, resulting in a greater demand for goods and a shift to the right of the curve. If their income decreased, they are less willing to spend money and cant purchase the bike, resulting in less demand for goods and a shift to the left of the curve.

$600 Price per Bicycle $500 $400 $300 $200 $100 0 1 D1

Increase in Demand

D2

2 3 4 5 6 Quantity Demanded (in thousands)

Decrease in Demand $600 Price per Bicycle $500 $400 $300 $200 $100 0 1 2 3 4 5 6 Quantity Demanded (in thousands) 7 D3 D1

3. The factors that can cause shifts in supply are prices of resources, government tools, technology, competition, prices of related goods, and producer expectations. 4. Like demand curves, a movement along a supply curve occurs only because of a price change. Each point plotted on this demand curve represents a specific combination of price and quantity demanded. The curve slopes upward, reflecting the greater quantity that producers will supply at higher prices. For example, a company that sells bicycles uses a graph to show the supply and price ratio. As prices for bikes increases, quantity supplied increases. As prices decrease, quantity supplied decreases. Referred to as a change in quantity demanded, price changes lead to movement along the supply curve.

Supply Curve $500 Price per Bicycle $400 $300 $200 $100 S1

1 2 3 4 5 Quantity of Supply (in thousands)

A shift in the supply curve is caused by a factor affecting supply other than a change in price. Shifts in demand are caused by factors such as prices of resources, government tools, technology, competition, prices of related goods, and producer expectations. This causes the supply curve to shift to the right or left, rather than simply moving along the curve. For example, if after a passage of time a factor other than price causes an increase in supply for bicycles, the entire curve shifts to the right. It this factor happens to cause a decrease in supply, the entire curve shifts to the left. If the bike business was faced with higher taxes, that means that they are faced with higher costs and the prospect of making less profit, meaning that they will supply less bikes to the market and the supply curve will shift to the left. If the bike business was granted a subsidy, the companys production cost lowers, meaning higher profits and increased supply. Thus, the curve will shift to the right. Increase in Supply $600 Price per Bicycle $500 $400 $300 $200 $100 0 1 2 3 4 5 Quantity of Supply (in thousands) 6 S2 S1

Decrease in Supply $600 Price per Bicycle $500 $400 $300 $200 $100 0 1 2 3 4 5 Quantity of Supply (in thousands) 6 S3

S1