Economics Chapter 2&3

Shift in the curve right

Increase in demand or supply

If the demand curve shifts left, and the supply curve shifts to the right, what happens to P and Q?

Q increases or decreases P decreases

Shift in the curve left

Decrease in demand or supply

Factors that shift demand

Income Tastes Population Expected future prices Prices of related goods

If the demand curve shifts right, and the supply curve is unchanged, what happens to P and Q?

Q increases P increases

If the demand curve shifts right, and the supply curve shifts to the right, what happens to P and Q?

Q increases P increases or decreases

An increase in the price of a complementary good shifts the demand curve

Left consumers buy less of the complementary good and less of this good.

An increase in income (inferior good) shifts the demand curve

Left consumers spend less of their higher incomes on the good.

An increase in the expected future price of the product shifts the supply curve

Left less of the good will be offered for sale today to take advantage of the higher price in the future.

An increase in the price of a substitute in production shifts the supply curve

Left more of the substitute is produced and less of the good is produced.

An increase in the price of an input shifts the supply curve

Left the costs of producing the good rise.

Factors that shift supply

Prices of inputs Technological change Number of firms in the market Expected future prices Prices of substitutes in production

If the demand curve is unchanged, and the supply curve shifts to the left, what happens to P and Q?

Q decreases P increases

If the demand curve shifts left, and the supply curve is unchanged, what happens to P and Q?

Q decreases P decreases

If the demand curve shifts left, and the supply curve shifts to the left, what happens to P and Q?

Q decreases P increases or decreases

If the demand curve is unchanged, and the supply curve shifts to the right, what happens to P and Q?

Q increases P decreases

If the demand curve shifts right, and the supply curve shifts left, what happens to P and Q?

Q increases or decreases P increases

If the demand curve is unchanged, and the supply curve is unchanged, what happens to P and Q?

Q unchanged P unchanged

An increase in population shifts the demand curve

Right additional consumers result in a greater quantity demanded at every price.

An increase in the number of firms in the market shifts the supply curve

Right additional firms result in a greater quantity supplied at every price.

An increase in taste for the good shifts the demand curve

Right consumers are willing to buy a larger quantity of the good at every price.

An increase in substitute good shifts the demand curve

Right consumers buy less of the substitute good and more of this good.

An increase in the expected price in the future shifts the demand curve

Right consumers buy more of the good today to avoid the higher price in the future

An increase in income (normal good) shifts the demand curve

Right consumers spend more of their higher incomes on the good.

An increase in productivity shifts the supply curve

Right the costs of producing the good fall.

Law of Demand

Rule that holding everything else constant. when the price of a product falls the quantity demanded of the product will increase and when the price of a product rises, the quantity demanded of the product will decrease.

Law of Supply

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied.