4⃣

Chapter 4- Changes in demand

and supply
Quantity demanded (supplied) vs demand
(supply)
Quantity demanded (supplied)
Is caused solely by a change in its own price, other things being constant.
Change in demanded (supplied) is shown by a movement along the same
curve. The demand (supply) remains unchanged

Demand (supply)
Caused by factors other than its own price. Change in demand (supply) is
shown by a shift of the whole demand (supply) curve. Increase in demand
(supply)=shift to right; Decrease in demand (supply)=shift to left

Factors affecting demand

 Change in income

Superior goods/normal goods or inferior goods

Chapter 4 Changes in demand and supply 1

 Superior goods are goods whose demand is positively related to income.
When people's income increase, the demand for normal goods will increase,
vice versa. Inferior goods are goods whose demand is negatively related to
income. When people's income increase, the demand of inferior goods will
decrease, vice versa.

💡 Whether a good is normal or inferior varies from person to person

and depends on the situation

2. Prices in related goods

Substitutes

Definition
2 goods are substitutes for each other if they can satisfy the same want of
a consumer

Implication
When 2 goods are substitutes for each other, an increase in the price of a
good will lead to an increase in the demand for the other, vice versa

Complements

Definition

Two goods are complements for each other if they are used together to
satisfy particular want

Implication

When two goods are complements for each other, an increase in the price
of one good will lead to a decrease in the demand for the other, vice versa

3. Derived demand

Definition

The relationship between factors of production and output. The demand for
factors of production is a derived demand of their output

Chapter 4 Changes in demand and supply 2

 Implication
When the demand of a good increases, the demand for its factors of
production increases, vice versa

4. Expectations of future prices

Definition
When the price of a good is expected to rise, the demand for it will increase,
vice versa

5. Size and composition of the population

Definition

The overall demand of goods and services increases when the size of the
population increases, vice versa

Reason
The market demand curve is obtained by adding up individual demand curves
horizontally. An increase in the number of buyers in the market will shift the
market demand curve to the right.

6. Taste or preference

Change in taste in favor of a good=demand increase

7. Other factors

Factors affecting supply

 Price of related goods

Joint supply

Definition
Two goods are in joint supply if the production of one good generates the
other good

Implication

When two goods are in joint supply, an increase in the price of one good
will lead to an increase in the supply of the other, vice versa

Chapter 4 Changes in demand and supply 3

 Competitive supply

Definition

Two goods are in competitive supply if they require similar factors of

production

Implication

When two goods are in competitive supply, an increase in the price of one
good will lead to a decrease in the supply of the other, vice versa

2. Prices of inputs

When the prices of inputs decrease, the supply of goods increase, vice versa

3. State of technology

Technological advancement leads to an increase in the supply of the good

4. Imposition of a unit tax on supplier

Raise production cost=supply decrease

5. Imposition of unit subsidy on supplier

Lower production cost=supply increase

6. Number of sellers in the market

An increase in the number of sellers in the market will lead to an increase in the
market supply of the good, vice versa
7. Expectation on future prices

Definition

When the price of a good is expected to increase, the supply of it will

decrease, vice versa

Effects of changes in demand and supply

D increase

Quantity, price increase

Chapter 4 Changes in demand and supply 4

 D decrease

Quantity and price decrease

S increase

Quantity increase, price decrease

S decrease

Quantity decrease, price increase

💡 When the change in P or Qd is uncertain, it depends on the extent of

change in demand and supply

Chapter 4 Changes in demand and supply 5