What happens to supply when demand increases? Expansion ALONG the supply curve (E to E 1 ) Equilibrium re-established at E1 Higher price (P 1 ) and a higher quantity (Q 1 )

What happens to supply when demand decreases? Contraction ALONG the supply curve (E to E 1 ) Equilibrium re-established at E2 Lower price (P 2 ) and a lower quantity (Q 2 )

What happens to demand when supply increases? Expansion ALONG the demand curve (E to E 1 ) Equilibrium re-established at E1 Lower price (P 1 ) and a higher quantity (Q 1 )

What happens to demand when supply decreases? Contraction ALONG the demand curve (E to E 2 ) Equilibrium re-established at E2 Higher price (P 2 ) and a lower quantity (Q 2 )

When more than one change is involved, it is not always possible to predict the outcome, since the changes may work in opposite directions.

(a) quantity remains unchanged at Q 0 (b) quantity falls to Q 2 (c) quantity increases to Q 3.

Explain the effects on supply, demand and the resulting market price of Brussel Sprouts based on the factors mentioned in the video. VIDEO: Brussels Sprouts Demand increases/decreases – WHY? Supply increases/decreases – WHY? This results in the price of Brussel Sprouts increasing/decreasing.

Over the next 3 minutes you will see 10 questions relating to shifting demand and supply curves. Assuming for each question the original equilibrium point is at position X, what is the new equilibrium position after each change that has occurred? Assume that Product A is a normal good. Hopefully, you will be happy with your answers by the end of the song! Quantity of Product A Price of product A D1D1 D2D2 S1S1 D3D3 S2S2 S3S3 X H I C A B D E F

Quantity of Product A Price of product A D1D1 D2D2 S1S1 D3D3 S2S2 S3S3 X H I C A B D E F Product A becomes more fashionable 1 1 Workers making Product A receive a pay increase 2 2 Income tax increases by 2% 3 3 Product B is a substitute for product A. The price of Product B decreases. 4 4 Demand for product C (which uses Product A as a component) decreases. Producers of Product A install new machinery to reduce cost of production Product A and Product D are in joint supply. There has been an increase in demand for product D. 6 6 There has been a large increase in utility bills in the past few months. The poor weather conditions have hampered production of Good A 7 7 Product Z is a complement to product A. Product Z falls in price. The government increases an indirect tax on Product A 8 8 The Government provides a subsidy to the manufacturers of Product A. New manufacturers enter the market for Product A. 9 9 There has been a fall in the exchange rate between country A (which produces good A) and country B. Manufacturers of product A purchase raw materials from country B. 10 Happy now? Click to go through the answers!

Product A becomes more fashionable 1 1 A A Workers making Product A receive a pay increase 2 2 H H Income tax increases by 2% 3 3 E E Product B is a substitute for product A. The price of Product B decreases. 4 4 E E Demand for product C (which uses Product A as a component) decreases. Producers of Product A install new machinery to reduce cost of production. 5 5 F F Product A and Product D are in joint supply. There has been an increase in demand for product D. 6 6 I I There has been a large increase in utility bills in the past few months. The poor weather conditions have hampered production of Good A 7 7 D D Product Z is a complement to product A. Product Z falls in price. The government increases an indirect tax on Product A 8 8 C C The Government provides a subsidy to the manufacturers of Product A. New manufacturers enter the market for Product A. 9 9 F F There has been a fall in the exchange rate between country A (which produces good A) and country B. Manufacturers of product A purchase raw materials from country B. 10 H H Quantity of Product A Price of product A D1D1 D2D2 S1S1 D3D3 S2S2 S3S3 X H I C A B D E F