EC101Outlines07SupplyDemandShifts

When the price of a substitute hamburger rises because

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Unformatted text preview: … because consumers want to buy less of the substitute,… and consume more of the first good instead —at every price. Supply & Demand>Demand-Curve Shifts>Substitutes EC101 DD & EE / Manove p 11 Example: Car rentals and 9/11 After 9/11, Americans were afraid to travel by air. Price 8 6 D’ D Road travel is a substitute for air travel, so demand for car rentals increased. S B - in new equilibrium: higher price more car rentals 4 A 2 0 10 20 30 40 Car Rentals EC101 DD & EE / Manove Supply & Demand>Demand-Curve Shifts>Car Rentals p 12 Complements Two goods are complements if you normally use both of them together. Demand for a good decreases when the price of a complement rises,… - eg. bread and butter because if the complement is too expensive, the first good is less useful. EC101 DD & EE / Manove Supply & Demand>Demand-Curve Shifts>Complements p 13 Example: Motel Rooms and Gasoline Prices Price Gas prices increase. 80 S D 60 D’ Motel rooms and gas are complements. A 40 - in new equilibrium: much lower price 20 0 somewhat fewer rooms. B 100 200 300 400 Rooms rented EC101 DD & EE / Manove Supply & Demand>Demand-Curve Shifts>Motel Rooms p 14 Supply-Curve Changes Changes in some supply-related factors will affect the quantities supplied at every price: Prices of Inputs Technology Economic Environment - taxes - gov. regulations - weather Changes in these factors affect supply in general,… …and they can shift the entire supply curve. EC101 DD & EE / Manove Supply & Demand>Supply-Curve Changes p 15 Example: Supply of Milk and Mad Cows Mad-cow disease kills many cows. Price 8 D 6 S’ S - in new equilibrium: Higher price B lower quantity A 4 2 0 100 200 300 400 Quarts of Milk EC101 DD & EE / Manove Supply & Demand>Supply-Curve Shifts>Cows p 16 Example: Supply of Milk and Hormones BST is discovered. Price D 8 S 6 S’ Causes each cow to give much more milk. A - in new equlibrium: lower price higher quantity (if you get more at a lower price, change in supply… B 4 if you get more at a higher price change in demand) 2 0 100 200 300 400 Quarts of Milk EC101 DD & EE / Manove Supply & Demand>Supply-Curve Shifts>Hormones p 17 Example: Opium and the Taliban Price 80 D 60 S S’ restrictions on opium production were relaxed. A B 40 In 2001, after the Afghan Taliban regime fell,... - in new equi: lower price higher quantity 20 0 100 200 300 400 Opium Output EC101 DD & EE / Manove Supply & Demand>Supply-Curve Shifts>Opium p 18 Introduction to Elasticity of Demand EC101 DD & EE / Manove Elasticity of Demand p 19 The Size of Price and Quantity Changes on the Demand Curve Remember that if the price of a good falls, the quantity demanded will increase. The demand curve isn’t shifting, but we are moving along the demand curve. Price...
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This note was uploaded on 10/01/2013 for the course ECON 101 taught by Professor Idson during the Fall '08 term at BU.

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