Supply and Demand Shifts

Reasons to shift Demand Curve:

  1. Change in tastes and preference of the consumer.
  2. Change in income.
  3. Change in the prices of other goods; complements or substitutes in consumption.
  4. Change in the number of consumers (population).

Reasons to shift the Supply Curve:

  1. Change in the costs of production i.e. the cost of inputs (parts) of the good, better technology, taxes.
  2. Change in the number of producers (size of the market).
  3. Change in prices of other goods. i.e. substitutes or complements in production.
  4. Changes in nature; expectations.

With that said, please give these two questions from your homework a little extra thought, as they are less intuitive and the professor says are the ones students get wrong most often:

PERSONAL COMPUTER MARKET: Intel raises/drops the price by 20% for its popular CPU chip.

STEEL INDUSTRY: researchers find new techniques for manufacturing steel which use 25% fewer materials.

GASOLINE MARKET: the state sales tax on gasoline is eliminated/imposed.

Lastly, REMEMBER:

Increase in supply is a shift to the RIGHT/DOWN and a Decrease is a shift to the LEFT/UP.

Increase in demand is more intuitive, it is a shift to the right/up and decrease is a shift to the left/down.

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