Changes in Supply and Demand
- Describe the differences between changes in demand and changes in the quantity demanded
- Describe the differences between changes in supply and changes in quantity supplied
It's hard to overstate the importance of understanding the difference between shifts in curves and movements along curves. Remember, when we talk about changes in demand or supply, we do not mean the same thing as changes inquantity demandedorquantity supplied.
A change indemandrefers to a shift in the entire demand curve, which is caused by a variety of factors (preferences, income, prices of substitutes and complements, expectations, population, etc.). In this case, the entire demand curve moves left or right:
Figure 1.Change in Demand.A change in demand means that the entire demand curve shifts either left or right. The initial demand curve D0shifts to become either D1or D2. This could be caused by a shift in tastes, changes in population, changes in income, prices of substitute or complement goods, or changes future expectations.
A change inquantity demandedrefers to a movement along the demand curve, which is caused only by a change in price. In this case, the demand curve doesn't move; rather, we move along the existing demand curve:
Figure 2.Change in Quantity Demanded.A change in the quantity demanded refers to movement along the existing demand curve, D0. This is a change in price, which is caused by a shift in thesupplycurve.
Similarly, a change insupplyrefers to a shift in the entire supply curve, which is caused by shifters such as taxes, production costs, and technology. Just like with demand, this means that the entire supply curve moves left or right:
Figure 3. Change in Supply.A change in supply means that the entire supply curve shifts either left or right. The initial supply curve S0shifts to become either S1or S2. This is caused by production conditions, changes in input prices, advances in technology, or changes in taxes or regulations.
A change inquantity suppliedrefers to a movement along the supply curve, which is caused only by a change in price. Similar to demand, a change in quantity supplied means that we're moving along the existing supply curve:
Figure 4. Change in Quantity Supplied.A change in the quantity supplied refers to movement along the existing supply curve, S0. This is a change in price, caused by a shift in thedemandcurve.
Here's one way to remember: a movement along a demand curve, resulting in a change in quantity demanded, is always caused by a shift in the supply curve. Similarly, a movement along a supply curve, resulting in a change in quantity supplied, is always caused by a shift in the demand curve.
Source: Lumen Learning, https://courses.lumenlearning.com/wmopen-microeconomics/chapter/changes-in-supply-and-demand/
This work is licensed under a Creative Commons Attribution 4.0 License.
Watch It
Watch this video for another demonstration of the important distinction between these terms.
Try It
Question 1
Try graphing each of these situations to determine if they cause a shift in demand, quantity demanded, supply, or quantity supplied.
The cost of rubber used to produce tires falls by 20%. This will result in ________ for tires.
- an increase in the quantity demanded
- a decrease in demand
- an increase in demand
Question 2
A recent study reveals that raisins are a natural aphrodisiac. This will likely result in ________ for raisins.
- only a decrease in the quantity demanded
- only an increase in the quantity demanded
- an increase in demand
Question 3
An unexpected government tax rebate has given all the residents in your town $1,000 of extra income. This will result in ________ for goods at the local retail store.
- an increase in the quantity supplied
- anly an increase in quantity demanded
- an increase in supply
Question 4
A recent pork shortage has increased its price by 25% on the world market. As an avid fan of hot dogs you would expect ________.
- a decrease in demand
- anly a decrease in the quantity supplied
- a decrease in supply
Try It
In the following simulation, you will have the opportunity to change the weather and/or change the cost of parking in order to push up the price of food from a food truck. You can play the simulation multiple times to see how different choices lead to different outcomes.
Click here to open resource:https://courses.lumenlearning.com/wmopen-microeconomics/chapter/changes-in-supply-and-demand/
Glossary
demand:
the relationship between the price and the quantity demanded of a certain good or service
quantity demanded:
the total number of units of a good or service consumers are willing to purchase at a given price
quantity supplied:
the total number of units of a good or service producers are willing to sell at a given price
shift in demand:
when a change in some economic factor (other than price) causes a different quantity to be demanded at every price
shift in supply:
when a change in some economic factor (other than price) causes a differentquantityto be supplied at every price
supply:
the relationship between price and thequantitysupplied of a certain good or service
