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Market equilibrium Qd = qs @ price = $1.40

Market equilibrium Qd = qs @ price = $1.40

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SHIFT in demand

Increased demand is a shift to the right from D 0 to D1.

Decreased demand is a shift to the left from D 0 to D2.

Determinants of Demand









Consumer Taste or Preference
Consumer Income
Price of Substitute and Complementary Goods
Population: Number of Buyers
Expectations of Price Change
Sales Taxes
Government Subsidies

Determinants of Demand

With an increase in income, consumers will purchase larger quantities, causing the demand
curve to increase (shifting to the right).

SHIFT in supply

Increased supply is a shift to the right from S 0 to S2.

Decreased supply is a shift to the left from S 0 to S1.

Determinants of Supply



Price of Inputs (e.g., wages and salaries)



Production Technology



Price of Related Goods



Number of Sellers



Expectations of Price Change

MARKET FOR SALMON

Good weather to fish leads to and increase in supply of salmon, causing its price to
decline and quantity to increase.

MARKET FOR NEWSPAPER

A change in tastes from print news sources to digital sources results in a leftward shift in
demand for the former. The result is a decrease in both equilibrium price and quantity.

MARKET FOR POSTAL SERVICES

(a) Higher wages causes the supply to decline, decreasing the quantity, but increasing the price.
(b) Communicating by E-mail & Text-message causes the demand to decline, decreasing both
quantity and price.

Shift in demand & Supply

Supply and demand shifts cause changes in equilibrium price and quantity.

Price ceiling

When the government set the market price below the equilibrium price, causing a shortage.
At P = 500, shortage = 19 – 15 = 4

Price floor

When the government set the market price above the equilibrium price, causing a surplus.
At Pf > Pe, surplus = 19 – 15 = 4