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.

Outlines

00:00

🎮 Shifts in Demand and Supply for Video Games

This segment of the video focuses on the dynamics of supply and demand curves, specifically using the market for video games as an example. It starts with a scenario where video games become more popular, leading to a rightward shift in the demand curve. This shift results in an increase in both the market price from $50 to $60 and the equilibrium quantity from 80,000 to 990,000 units. The video explains that an increase in demand always leads to a higher market price and quantity, assuming the supply curve remains unchanged. The video then contrasts this with a leftward shift in demand, which occurs when the price of a complementary good (like video game consoles) increases, causing a decrease in demand for video games. This shift leads to a decrease in both the market price and quantity. The determinants of the demand curve are also discussed, including factors like taste and preferences, income, price expectations, market size, and the prices of substitute and complementary goods.

05:00

📈 Effects of Supply Shifts and Combined Changes

The second part of the video script delves into shifts in the supply curve. It uses the example of new sellers entering the video game market, causing a rightward shift in the supply curve. This shift leads to a decrease in the market price from $50 to $28 and an increase in the market quantity from 80,000 to 95,000 units. The video emphasizes that the demand curve remains unchanged during this shift, and it's the supply curve that moves. The determinants of the supply curve are also discussed, including resource costs, productivity, technology, taxes, subsidies, the number of sellers, price expectations, and the prices of other goods that use the same resources. The video concludes by exploring scenarios where both supply and demand curves shift simultaneously, discussing the indeterminate effects on price and quantity depending on the magnitude and direction of the shifts. It advises students to practice with various examples to better understand these concepts.

Keywords

💡Supply and Demand

Supply and Demand are fundamental concepts in economics that describe the relationship between the quantity of a good that producers are willing to supply and the quantity that consumers are willing to purchase at various prices. In the video, the instructor uses the example of video games to illustrate how changes in supply and demand can shift the equilibrium price and quantity. For instance, when video games become popular, the demand curve shifts to the right, leading to an increase in both the market price and quantity sold.

💡Equilibrium

Equilibrium in economics refers to a state where the quantity demanded of a good or service equals the quantity supplied. It is the point at which the market clears, with no surplus or shortage. The video explains that the initial equilibrium for video games is at a market price of $50 with 80,000 units sold. Changes in supply or demand can shift this equilibrium, affecting both the price and quantity at which the market clears.

💡Shift of Demand Curve

A shift of the demand curve indicates a change in the quantity demanded at every price level, ceteris paribus (all other things being equal). In the video, the instructor describes a rightward shift of the demand curve for video games due to increased popularity, which results in a higher market price and quantity sold. Conversely, a leftward shift, such as when the price of complementary goods like video game consoles increases, leads to a decrease in demand for video games.

💡Complimentary Goods

Complimentary goods are products that are used together, and the demand for one good increases when the demand for the other good increases. In the video, video game consoles and video games are described as complimentary goods. An increase in the price of video game consoles leads to a decrease in demand for video games, illustrating the inverse relationship between the prices of complimentary goods and their respective demands.

💡Determinants of Demand

Determinants of demand are factors that influence the quantity of a good that consumers are willing to purchase. The video lists taste and preferences, income, price expectations, market size, and the prices of substitute and complimentary goods as determinants. For example, an increase in taste and preferences for video games would shift the demand curve to the right, increasing both the price and quantity sold.

💡Shift of Supply Curve

A shift of the supply curve represents a change in the quantity supplied at every price level, again assuming all other factors are constant. The video explains that a rightward shift occurs when new sellers enter the video game market, leading to a decrease in price and an increase in quantity sold. A leftward shift, caused by factors like increased resource costs, results in higher prices and lower quantities.

💡Resource Costs

Resource costs are the expenses associated with the production of goods, including labor, materials, and capital. The video indicates that an increase in resource costs can lead to a leftward shift in the supply curve, as higher production costs reduce the quantity of goods suppliers are willing to produce at each price level, thus increasing the market price.

💡Productivity and Technology

Productivity refers to the efficiency with which resources are used to produce goods, and technology encompasses the tools and methods employed in production. The video explains that improvements in productivity or technology can lead to a rightward shift in the supply curve by reducing the cost of production, thus increasing the quantity supplied at each price level and lowering the market price.

💡Taxes and Subsidies

Taxes and subsidies are government policies that can affect supply. Taxes increase the cost of production, potentially leading to a leftward shift in the supply curve, while subsidies can lower production costs, causing a rightward shift. The video uses these concepts to illustrate how government interventions can influence the supply of goods in a market.

💡Price Expectations

Price expectations refer to beliefs about future price levels. If suppliers expect future prices to be higher, they might reduce current supply in anticipation of selling at a higher price later, which can lead to a temporary leftward shift in the supply curve. Conversely, if consumers expect future prices to rise, they may increase current demand, leading to a rightward shift in the demand curve.

💡Indeterminate

Indeterminate in this context means that the outcome (price or quantity) cannot be predicted with certainty without additional information. The video uses the term to describe situations where both supply and demand curves shift simultaneously, and the magnitude of these shifts is unknown. This uncertainty leads to indeterminate outcomes for the new equilibrium price and quantity.

Highlights

The session focuses on the shifting of supply and demand curves in the context of AP macro and microeconomics.

A rightward shift of the demand curve for video games leads to an increase in market price from $50 to $60.

An increase in demand results in a higher equilibrium quantity, moving from 80,000 to 990,000 video games.

The supply curve remains constant during a demand increase, with only a point-to-point movement along the curve.

A leftward shift of the demand curve occurs when video game consoles, a complementary good, become more expensive.

A decrease in demand leads to a fall in market price and a reduction in equilibrium quantity.

Determinants of the demand curve include taste and preferences, income, price expectations, market size, and prices of substitutes and complements.

An increase in taste and preferences or income for normal goods shifts the demand curve to the right.

Expectations of higher future prices can increase current demand.

A rightward shift of the supply curve due to new sellers entering the market decreases the market price to $28.

An increase in supply leads to a rise in market quantity from 80,000 to 95,000 video games.

The demand curve does not shift with an increase in supply; instead, there's movement along the demand curve.

A leftward shift in supply occurs when resource costs for producing video games increase.

Supply decreases when there's an increase in production costs, leading to a higher market price and lower quantity.

Determinants of the supply curve include resource costs, productivity, technology, taxes, subsidies, and the number of sellers.

Improvements in productivity or technology shift the supply curve to the right, increasing supply.

Government policies like taxes and subsidies can affect the supply of goods.

When demand and supply curves shift simultaneously, the price and quantity outcomes are indeterminate.

An increase in both demand and supply will definitely increase the equilibrium quantity.

A decrease in both demand and supply will definitely decrease the equilibrium quantity.

When demand increases and supply decreases, the price will definitely rise, but the quantity is indeterminate.

Transcripts

welcome to another Noble review session

for students of AP macro and

microeconomics last time we looked at

the laws of supply and demand today

we're going to focus on Shifting the

supply and demand curves let's begin

with the rightward shift of the demand

curve suppose that we have a market for

video games which is initially in

equilibrium at a market price of $50 and

80,000 video games now suppose that

video games become wildly popular

causing the demand curve to increase to

shift to to the right when that shift

occurs the market price will increase

from $50 to

$60 and the equilibrium quantity will

increase from 80 to 990,000 video games

so when the demand increases or shifts

to the right market price will always

increase and the quantity will increase

as long as the supply curve remains

constant now please notice that we moved

point to point along our supply curve

that is the quantity supplied increased

but the supply curve itself stayed the

same now let's look at a leftward shift

of the demand curve suppose that video

games and video game consoles are

complimentary Goods if the price of a

video game console goes up then the

demand for its complement video games is

going to go down this leftward shift of

demand will cause the price to fall from

P to P1 and the equilibrium quantity

fall from Q to q1 so when demand shifts

to the left or decreases the price will

decrease and the quantity will decrease

the supply curve does not move no shift

in Supply however we go point to point

along our supply curve that means that

the quantity supplied is moving from Q

to

q1 now let's look at the determinants or

the shift factors of the demand curve

these include taste and preferences

income price expectations the market

size or the number of buyers in the

market the prices of substitute goods

and the prices of complimentary Goods if

there is an increase in taste and

preferences demand will shift to the

right it increases if there's an

increase in income and the good as a

normal good demand will increase as well

however if there's an increase in income

and it's a market for an inferior good

demand would

decrease price expectations means that

if we expect the price to be higher in

the future our demand in the current

time will

increase if we have more buyers in the

market the market size increases demand

will

increase if the price of a substitute

good increases the demand for the good

will

increase if the price of a complimentary

good increases demand for the good will

decrease there's a lot to digest here so

it's very important that you practice as

many examples as possible do the ones

that your teacher gives you in class or

get a review book or get one of those

review apps the more practice the better

now let's look at a rightward shift of

the supply curve Suppose there are new

sellers of video games in the market

that means that the supply curve will

shift to the right the market price here

Falls from $50 to

$28 however the market quantity will

increase from 80,000 video games to

95,000 video games so when the supply

curve shifts to the right or increases

the price will fall and the quantity

will rise notice the demand curve does

not shift as a result of this instead

there's point-to-point movement along

the demand curve the quantity demanded

increases from 880,000 to 95,000 video

games but the demand curve itself stays

put if the prices of economic resources

used to produce video games increase

that will cause a leftward shift or

decrease of the supply curve so here the

market market price increases from P to

P1 and the equilibrium quantity

decreases from Q to q1 so when there's a

leftward shift of Supply or decrease in

Supply the market price will increase

and the market quantity will decrease

the demand curve stays the

same here are the determinants or the

shift factors of Supply these include

resource costs productivity and

Technology taxes and subsidies the

number of sellers in the market price

expectations and the prices of other

Goods that use the same

resources if resource costs go up that

is the costs of production increase

Supply will decrease Supply shifts to

the left if productivity improves or

technology improves Supply will shift to

the right Supply

increases if the government increases

taxes or reduces subsidies to sellers

that's going to going to raise the cost

of production and reduce the supply if

there's an increase in the number of

sellers in the market supply will shift

to the right if sellers expect the

future prices to be higher they'll

reduce the supply in the

present if the price of another good

that uses the same resources in

production

increases the supply of this good will

decrease again I know that there's a

whole lot here on this slide you have to

practice so please do as many practice

problems as you can now that we've

looked at changes in supply and demand

separately let's put them together what

if the demand and Supply curves shift at

the same time but we don't know the

magnitude of the shifts what will happen

to price and quantity so suppose that

demand and Supply increase at the same

time the price can go up the price can

go down or the price can stay constant

based on these shifts

the equilibrium quantity however will

definitely increase with an increase in

demand and increase in

Supply now if demand decreases and

Supply decreases at the same time the

price can go up it can go down or stay

the same the price is

indeterminate the quantity we know will

definitely

decrease if demand decreases at the same

time that the supply increases we know

that the price will definitely fall but

now it's the quantity that is

indeterminant the quantity can go up

down or stay

constant if demand increases and Supply

decreases we know that the price will

definitely rise but the quantity can go

up go down or stay the same it's the

quantity that's

indeterminate thank you for watching

another Noble review session brought to

you by Noble review books I hope you

enjoyed this video on the determinance

of supply and demand and the shifting of

the curves