Economics is everywhere (and we can prove it) Changes in Supply and Demand

Transcription

1 Economics is everywhere (and we can prove it) Changes in Supply and Demand Usually, a demand or supply curve only illustrates a product s market during a period of time; essentially, it is a. The only factor involved in changing the quantity of a product that is demanded or supplied is the. When this changes, we along the curve to a new quantity supplied or a new quantity demanded. But do not stand still! The passage of allows other factors to become influential these phenomena cause curves to to the right or to the left. A shift to the right causes an in supply or demand and a shift to the left causes a in supply or demand; because it s a shift, this change is true at and price. There are 5 demand shifters and 6 supply shifters we will be learning: Demand: 1. Consumer tastes and preferences 2. Market Size 3. Income 4. Prices of Related Goods 5. Consumer Expectations Create a mnemonic device for remembering these, like Crime makes innocent people crazy. Write yours below: Supply: 1. Prices of Resources 2. Government Tools 3. Technology 4. Competition 5. Prices of Related Goods 6. Producer Expectations Create a mnemonic device for remembering these, like People Grimace Tasting Celery Prawn Pizza. Write yours below: In partners, we will be brainstorming examples of how demand and supply can shift due to these various factors; to do this, you will do the following: 1. Look over the provided explanation of that shifter 2. Discuss the shifter with your partner, and view section 2 of chapter 3 (Demand) or section 2 of chapter 4 (Supply) for additional ideas or examples if more clarification is needed. 3. Explain, IN YOUR OWN WORDS, an example from your life, your family or friend s lives, or current news of that particular shifter (or just try to be as real world as possible) say what happened and what direction, right or left, your curve shifted also, why is this an example of that shifter? 4. Think of a way to turn your example into a headline the kind we see in the news. You re going to text that headline, with the initials of your first names (so, Ann and Carin would be AC) to the number specified. For example, t-shirt factories panic as the price of cotton triples! there s an example and an effect in your headline.

2 DEMAND SHIFTERS: 1. Consumer tastes and preferences: -this is connected to the popularity of an item, or its perception in the public. Ex: A new boy band becomes very popular girls everywhere have to listen to them, see them, and wear clothes with them on them. Here s what happens to the curve: Growing popularity made people willing to buy more boy band stuff at each and every price a whole new curve is generated! -If the band then gets overexposed, the curve can shift back to the left. -Can also be connected to something being good or bad for you. Now turn what you ve written into a headline, and text your example:

3 DEMAND SHIFTERS CONT D: 2. Market Size: (three factors) a. private business a good or bad ad campaign can literally change the number of people who demand a product (the curve shifts right if the campaign is effective) b. Gov t Regulations like trade agreements or embargos can make demand shift by changing the number of people who have access if we reopen trade with Cuba, the demand curve for cigars would shift to the right because there are literally more PEOPLE who can now buy them. c. Technology This creates shifts by creating new and better items to demand and making older items obsolete (the curve of the older item shifts left)

4 3. Income this has to do with how much money people are making One exception: -More money = greater demand for goods and services (curve shifts right) -Less money = decreased demand (shift left) When a person makes more money, they also tend to demand more expensive items, this can cause the demand for more economical products to shift left. (as you get wealthier perhaps you buy more steak instead of ground beef all the time)

5 4. Prices of Related Goods (2 types) a. Substitute goods A change in the price of an item might lead to a shift in the demand for a substitute item that is cheaper. Example situation: price of butter goes up we ll buy margarine instead! Curve for Butter (just a price change) Curve for margarine b. Complementary goods -These are things that go together hammers and nails, PB & J, peas and carrots, if you re me cookie dough and bbq chips, if you re Hannibal Lecter Human liver and Fava Beans, etc. -a change in the price of one good can cause a change in the demand for something that goes with it. Example: When the price of paint goes down, the demand for paintbrushes would shift right, even though the price remained the same.

6 DEMAND SHIFTERS CONT D: 5. Consumer Expectations - demand curves can shift based on people s BELIEFS/EXPECTATIONS about a possible change in their purchasing power or the upcoming availability of something. THIS IS NOT what they expect to happen due to something, like buying Proactiv because you expect it will clear up your face. That s a consumer tastes and preferences thing you would prefer for your face to be clear. Examples include spending extra money when anticipating a raise, not buying as much if a recession looms or your job is on the line, rushing out for groceries if a snowstorm is coming.

7 SUPPLY SHIFTERS: 1. Prices of Resources: - the cost of a company s factors of production (raw materials, labor, etc.) affects supply. If costs go up, the curve shifts left. Example: Minimum wage is decreased Here s what happens to the curve: Workers cost less, so product/service supply shifts right, because they can spend more on production and less on worker pay. If costs increase, a company can t make as much for the same price, so curve shifts left.

8 SUPPLY SHIFTERS CONT D: 2. Government Tools (3 types) a. taxes required payments to fund services (taxes go up, supply shifts left and vice versa) b. Subsidies payments to private businesses by the gov t (helps keep things affordable) (lowers costs for company, so supply shifts right) c. Regulations rules about how companies conduct business (loose regulations allow $ to be spent on production, not cleanliness or safety, so supply shifts right. Strict regulations cause curve to shift left.)

9 3. Technology VERY POWERFUL! -this can shift curve WAY to the right when a faster/better way to produce something is introduced. Example: Assembly Line Before: A complete car chassis could be made in 728 minutes (12 hours). After: It took 93 minutes. *NOTE: This is initially a big production cost, so it much be worth it to use the new technology!

10 4. Competition -When a product is introduced or if it s successful, everyone wants an opportunity to profit curve shifts right because more people start making a similar thing. Ex: Video Games you make one game where you can steal a car and kill a prostitute, and suddenly there are a million out there! -When market gets saturated 9we get tired of it, or it s not popular anymore), demand decreases, profits decrease, supply shifts left supply can also shift left because of mergers and takeovers there used to be a bunch more cell phone companies, but many have merged, causing less supply and higher prices.

11 SUPPLY SHIFTERS CONT D: 5. Prices of Related Goods -A decrease or increase in the price of one item can encourage suppliers to make something similar that product s curve will shift right. Example: Corn vs. Wheat Can both be grown in this area, but corn is more valuable now because of its ethanol potential, causing the price to increase. Curve for Corn Curve for Wheat

12 SUPPLY SHIFTERS CONT D: 6. Producer Expectations -The expected income from sales affects supply if a company thinks people will buy something or a big event is coming, they ll produce more to prepare for it, shifting supply to the right. If they think something is headed out or a change of season is coming, supply shifts left. Curves can shift right or left in anticipation of seasons like winter or basketball season, holidays like Christmas or St. Patrick s, etc. It can be hard to predict. Great work!