Question

supply shifts (2 causes):

demand shifts (2 causes):

think (challenge):
if both supply and demand increase, what happens to price? (explain)

Explanation:

Supply Shifts Causes:

1. Changes in input costs: If the price of raw materials, labor, or other production inputs falls, producers can make more of a good at every price, shifting supply right; higher input costs shift supply left.
2. Technological improvements: New, more efficient production methods lower production costs, allowing producers to supply more output at each price, shifting the supply curve right.

Demand Shifts Causes:

1. Changes in consumer income: For normal goods, higher income increases consumer ability to buy, shifting demand right; lower income shifts it left.
2. Changes in consumer tastes/preferences: Positive trends or marketing for a good make consumers want more of it at every price, shifting demand right; negative preferences shift it left.

Challenge Question Explanation:

When both supply and demand increase, the effect on price depends on the magnitude of each shift:

1. If demand increases more than supply: The upward pressure on price from higher demand outweighs the downward pressure from higher supply, so price rises.
2. If supply increases more than demand: The downward pressure on price from higher supply is stronger than the upward pressure from higher demand, so price falls.
3. If the shifts are equal: The opposing pressures cancel out, and price remains unchanged.

Answer:

Supply Shifts (2 causes):

1. Changes in production input costs
2. Technological advancements in production

Demand Shifts (2 causes):

1. Changes in consumer disposable income
2. Shifts in consumer tastes and preferences

Think (Challenge):

The change in price is indeterminate (depends on the relative size of the supply and demand increases):

• If demand increases > supply increases: Price rises
• If supply increases > demand increases: Price falls
• If supply and demand increases are equal: Price stays the same