● Expectations about the future – Quantity demanded for a good or service today may depend on expectations about the future (about prices, incomes, etc.). EXAMPLE : If the price of a good is expected to increase in the future we would expect the quantity demanded to increase today as people try to buy before the price increase.
Demand Schedules and Demand Curves A demand curve is drawn by holding the other variables constant and varying the price of the product. Therefore it represents a relationship between the quantity demanded and price, other things being equal. Fig 3-1 shows the usual downward sloping demand curve (both as a data schedule and graphed). Shifts of the Demand Curve are caused by changes in any of the determinants of quantity demanded, other than the price of the good itself. When one of these variables changes, consumers will want to purchase more or less of a good at any and all prices. This is shown graphically as a rightward or leftward shift of the demand curve (see Fig 3-2 and Fig 3-3). Changes in the price of the good itself cause movements along the demand curve. This is referred to as a change in the quantity demanded. Changes in any of the other variables cause the demand curve to shift. This is referred to as a change in demand. The difference is highlighted in Fig 3-4. SUPPLY The quantity supplied (Qs) of a good in a particular market (the amount producers wish to sell over a certain time period) depends on several variables. Many of the most important are listed below: ● Product’s own price – the quantity supplied is positively related to price. Suppliers find it more profitable to produce at higher prices than lower prices. Higher prices result in higher quantities supplied. ● Input Prices – when the prices of an input that is used to make a product rise, producing the good becomes less profitable, and quantity supplied decreases. When an input price falls, the opposite is true. EXAMPLE: By increasing the production costs of the ice cream, an increase in the price of sugar causes the quantity of ice cream supplied to decrease ● Technology – by reducing firms’ costs, advances in technology increase the quantity supplied. ● Government taxes or subsidies – taxes that increase the cost of production or subsidies that decrease the cost of production can affect quantity supplied in the expected direction.
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- Fall '08
- Supply And Demand