Shifts in Demand and Supply

Shifts in Demand and Supply are caused when a factor of  Demand or Supply causes the Demand or Supply curve to shift to the left or right.

Shifts in Demand:

A shift in Demand is caused when the price of a goods in Joint demand or competing demand rise or fall, or simply caused by a change in people's current interests.
If the Demand curve was to shift to the right, then this would indicate that the Quantity demanded for a product would increase as price stays the same. Similarly, if the Demand curve shifts to the left, the opposite has happened-Quantity demanded for the good decreases as price stays the same. The graph below shows just that:


Shifts in demand

-The Demand curve D1 represents the original demand curve.
-A rightward shift causes the Demand curve shift to shift to the right. This is represented by the Demand curve D2. This could be caused by an increase in population.
-A leftward shift in Demand causes the Demand curve to shift to the left. This is represented by the Demand curve D3. This could be caused by a decrease in the price of a good in Joint Demand (goods that go together, like CDs and CD players).



Shifts in supply:

A shift in supply is caused when the firm changes the price at which they will sell a certain quantity of the good at a different price, when the firm has had a tax imposed on them or when the firm has been granted a subsidy by the government. If the supply shifts to the left, then the firm may have had a tax imposed on them. Similarly, if the supply curve shifts to the right, then they may have had a subsidy granted to them. The graph below shows this:


Shifts in Supply



-The Supply curve S1 represents the original supply curve.
-A rightward shift in Supply causes the supply curve to shift to the left. This is represented by the supply curve S2. This could be caused by a subsidy granted to them.
-A leftward shift in supply causes the Supply curve to shift to the left. This is represented by the Supply curve S3. This could be caused by a tax being imposed on the firm.

Economics graphs-a summary

A simple summary of Economics graphs.

The Demand Graph:
This graph shows how many people would be willing to pay for a good at a certain price. As the  price for a good increases, then the quantity demanded will decrease.

The demand graph, with price on the Y axis and
Quantity (demanded) on the X axis



















The Supply Graph:
This graph shows what the company supplying the good will be willing to sell the good for at a certain price. As the price rises, more of the good will be supplied. Why? Because all firms have a profit maximising objective.


The supply graph, with Quantity (supplied) on the X axis and
Price on the Y axis.


















The Equilibrium Graph:
This combines both the graphs we have learnt about above-the Demand graph and the Supply graph. The point at which the two lines cross is called the Equilibrium.
As many people will know from they're Maths, that can only occur in one place, and if they are not parallel to each other. Well, considering the lines are not parallel, then there will be a point at which they cross.



The Equilibrium graph, with price on the Y-axis and
Quantity demanded/supplied on the X axis


















The PPF:
PPF, short for Possibility Production Frontier, is when a graph shows the maximum possible

output of two goods made in the same factory. This, unlike the other three graphs I have covered in this post, is represented as a curve. If we take a farm, for example, a farmer can grow two different types of crop in it, wheat and tobacco. If the farmer grows tobacco, the land in some places would become unsuitable for the wheat to grow in. Therefore, not all of the land can be used.

If the company is operating inside the PPF area, then the resources are not being used as effectively as could be. It is not possible to operate outside this area without an upgrade in technology or more resources available to the company.



The PPF graph with 2 types of good show:
Capital goods on the Y axis, and Consumer goods on the X axis



Supply and demand graphs

Firstly, I should tell you that supply graphs are different for demand graphs. These two types of graph should be (hopefully) easy to explain.

Demand graphs:
These were the first type of graph that I came across [out of the two (so far) that I have learnt about].  Demand is how much a customer/consumer is willing to pay for an item. take for example chocolate bars (because most people will buy them). If the price is low, a lot of people will buy them. If the price increases, then less and less people will buy them (and then no one will probably buy them at a certain price).
To show how this works, I'll show the price per unit and quantity demanded in a table.

Price per unit                Quantity
(1 chocolate bar)          demanded            
5p                                  70                     
10p                                60
15p                                50
20p                                40
30p                                20

As you can obviously see, as the price per unit increases, the quantity demanded decreases. This is known as an inverse relationship.
Now, as a graph, it looks like this:

It is now easy to work out the quantity demanded for the chocolate bars at any given price. So if you set the price to 25p, the quantity demanded would be 30.






Supply graphs:
This was the second type of graph that I came across. Supply is where a company will only supply a certain quantity of the good at a certain price. So if I show this in a table, as I did with demand, hopefully things will become clearer.

Price for a                             Quantity
chocolate bar                        supplied            
5p                                         20
10p                                       30
15p                                       40
20p                                       50
30p                                       70

As you can see from the table, as the price for 1 chocolate bar increases, the quantity supplied increases. This means there is a direct relationship between price per unit and quantity supplied. As a graph, it looks like this:



Now , you can easily work out the quantity supplied for the good at any price. So, if the price of the chocolate bar was 25p, the company would supply 60 chocolate bars.








Now, the equilibrium-where demand and supply meet.
If we combine both the demand and supply graphs together, we can find out the equilibrium for the product. At the point of equilibrium, there is no shortage of goods and no excess goods. The graph looks like this:




Blue line=Quantity demanded
Red line=Quantity supplied

Now, it may not be the clearest graph ever, but the point of intersection (the equilibrium) is when the quantity supplied is 45, and the price they are sold for 17p.










This is without the factors which will affect both demand and supply.
--Factors that affect demand include a change in population and simply a change in people's current interests.

--Factors that affect supply include tax and improvements in technology.

Summary points:

-Demand graphs are different to supply graphs.
-Quantity demand and price per unit are inversely proportional to each other.
-Quantity supplied and price per unit are directly proportional to each other.
-The point on the graph where both lines intersect is called the equilibrium.
-The equilibrium is where there is no shortage of goods and no excess goods.