Agriculture Reference
In-Depth Information
$40.00
S3
S
S2
$37.50
Decrease in supply
$35.00
$32.50
P
1
$30.00
$27.50
$25.00
Increase in supply
$22.50
$20.00
$17.50
$15.00
$12.50
$10.00
0
5
10
15
20
25
Q
1
30
35
40
45
Q
3
Q
2
Quantity
of cereal
(000 cases)
Figure 3.3
Shifts in supply curves
5.
Subsidies or taxes
: New taxes raise costs and shift the supply curve to the left. Subsidies
to providers act to lower costs and shift supply curves to the right.
6.
Number of suppliers
: If fewer farms raise hogs, the supply will shift to the left.
Conversely, if more farms decide to raise hogs, the supply curve will shift to the right.
A demand curve can also shift or change position over time. Demand increases when buyers
are willing and able to buy more at the same price (
Figure 3.4
)
. When this occurs, the demand
curve shifts to the right. Demand decreases when the opposite occurs: buyers purchase less
at any given price. When the entire demand curve shifts, a change in demand has occurred.
There are fi ve factors that can cause a demand curve to shift. The fi ve determinants of
demand are:
1.
Income
: As incomes rise, consumers can afford to buy more, and this shifts the demand
curve to the right if the good is a normal good. A normal good means that as income
increases, buyers desire more of the product.
2.
Tastes and preferences
: Changes in emotional and psychological wants can shift demand
in either direction. For example, one set of consumers gets satisfaction from buying
local foods, shifting demands for those foods to the right. Conversely, low-carb diets
shifted demand to the left for pasta, breads, and potatoes. Tastes and preferences are
heavily infl uenced by consumer psychological and emotional factors, and the media,
and can be quite complex.
3.
Expectations
: When buyers expect the price to fall, they may postpone purchases,
thereby causing the demand curve to shift to the left. If buyers expect prices to rise in
the future, the demand curve can shift to the right.
