NB1. Shifting Supply and Demand

Summary

This AP economics review session explores the dynamics of supply and demand shifts. It illustrates how increased popularity of video games can shift the demand curve right, raising prices and quantities. Conversely, it explains how a price hike in complementary goods like gaming consoles can decrease demand. The video also covers determinants affecting demand and supply, such as tastes, income, and resource costs, emphasizing the importance of practice to grasp these concepts.

Takeaways

• 📈 When demand increases (rightward shift), the market price and quantity both increase, assuming supply remains constant.
• 📉 If the demand decreases (leftward shift), the market price and quantity both decrease, assuming supply remains constant.
• 🎮 The example of video games illustrates how changes in popularity can shift the demand curve.
• 🔄 Complimentary goods, like video games and consoles, have demand that is inversely affected by the price of the other.
• 📊 Determinants of demand shifts include tastes, preferences, income, price expectations, market size, and prices of substitutes and complimentary goods.
• 📦 A rightward shift in the supply curve, such as from new sellers entering the market, leads to a decrease in price and an increase in quantity.
• 🛒 The shift factors of supply include resource costs, productivity, technology, taxes, subsidies, the number of sellers, and prices of other goods using the same resources.
• ⚖️ When both supply and demand curves shift simultaneously, the final market price and quantity are indeterminate without knowing the magnitude of the shifts.
• 🔝 An increase in both supply and demand will definitely increase the equilibrium quantity, regardless of the direction of price change.
• 🔕 If demand decreases and supply increases, the price will definitely fall, but the quantity change is indeterminate.

Q & A

What happens to the market price and quantity when the demand for video games increases?

When the demand for video games increases, causing the demand curve to shift to the right, the market price increases from $50 to $60, and the equilibrium quantity increases from 80,000 to 990,000 video games.

How does the price of a complementary good, like a video game console, affect the demand for video games?

If the price of a video game console, a complementary good, goes up, the demand for video games decreases, causing a leftward shift in the demand curve. This results in a decrease in both the market price and the equilibrium quantity.

What are the determinants or shift factors of the demand curve?

The determinants or shift factors of the demand curve include taste and preferences, income, price expectations, market size, and the prices of substitute and complementary goods.

What is the effect on the market when there is an increase in the number of video game sellers?

An increase in the number of video game sellers leads to a rightward shift in the supply curve. This causes the market price to fall from $50 to $28, and the market quantity to increase from 80,000 to 95,000 video games.

How does an increase in resource costs for producing video games affect the supply curve?

An increase in resource costs for producing video games causes a leftward shift in the supply curve, leading to an increase in the market price and a decrease in the equilibrium quantity.

What are the determinants or shift factors of the supply curve?

The determinants or shift factors of the supply curve include resource costs, productivity, technology, taxes and subsidies, the number of sellers in the market, price expectations, and the prices of other goods that use the same resources.

What happens to the price and quantity when both demand and supply curves shift simultaneously?

When both demand and supply curves shift at the same time, the price can increase, decrease, or stay the same, depending on the magnitude of the shifts. However, the equilibrium quantity will definitely change.

If demand decreases and supply also decreases, what is the indeterminate aspect of the market outcome?

If demand decreases and supply also decreases, the price can go up, down, or stay the same, making it indeterminate. However, the quantity will definitely decrease.

What is the certain market outcome when demand increases and supply decreases?

When demand increases and supply decreases, the price will definitely rise, but the quantity can go up, down, or stay the same, making the quantity indeterminate.

What advice is given to students regarding practice for understanding shifts in supply and demand curves?

Students are advised to practice as many examples as possible, including those given by their teacher, or to use review books and apps to enhance their understanding of the shifts in supply and demand curves.