Principles of Microeconomics / Unit 2 MIC 0117 worked example, 60 to 90 seconds
Which Curve Shifts, and Which Way
The idea
Given an event, name the shifter, name the curve, and give the direction, then read off the result. Income, tastes, population, related prices and buyer expectations shift demand. Input prices, technology, natural conditions, government policy, seller expectations and the number of sellers shift supply. A rightward shift of demand raises both price and quantity; a leftward shift lowers both. A rightward shift of supply lowers price and raises quantity; a leftward shift raises price and lowers quantity. In every one-shift case, both answers are certain.
In practice
Worked example, four events in the market for bicycles. A rise in commuters' incomes: a demand shifter, demand shifts right, price and quantity rise. A new frame-welding robot: technology, supply shifts right, price falls and quantity rises. A tax on each bicycle sold: government policy, supply shifts left, price rises and quantity falls. A fall in the price of bus passes, a substitute: demand shifts left, price and quantity fall.
Where people slip
Two errors recur. Naming the wrong side, usually by putting a cost change on the demand curve because it ends up changing what buyers pay. And doubling up, by shifting demand for a good because its own price changed. The good's own price is never a shifter; it is the thing the shift changes.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Builds on
Unlocks
- 0142The Drought Chain: Which Curve Moves, Which Does Not
- 0209Which Labor Curve Shifts, and Which Way
- 0626Tracing a Demand Increase to the Long Run
- 1004The Negative-Externality Market
- 1209Derived Demand and Shifts in Labor Demand
- 1402Price as a Signal of Quality
- 1410Third-Party Payers
- 1511Two Countries, One Good
Something wrong in this lesson? Flag it