DEMAND and SUPPLY FUNDAMENTALS: Shifts in Demand or Supply
Name __________________________ 4 [worth 50 points]
If in doubt, explain your choice with a sentence of two.
Variables typically included in a multivariate demand function (other than the price and quantity of the item the
demand function represents) are consumer tastes and preferences, the number of buyers, spendable
(disposable) income, prices of substitute goods, prices of complementary goods, advertising expenditures,
weather, and expectations. Recalling that the price of the item being considered is placed on the vertical axis,
and the quantity on the horizontal axis, the other variables are termed demand shifters. Please answer the
following questions about the affect changes in other variables might have on the demand for the item. These
changes will either cause demand to increase (shift right) or decrease (shift left). Use either word as
applicable, for the short answer.
1. If the future prices of the good being considered are expected to decrease, then present demand
for the good being considered will likely:
If the future prices decreases, then present demand of the goods will definitely increase. This is
because many people will have purchasing power for the goods due of their low prices.
2. If the demand for a good decreases then the demand for a complementary good will likely
_to__increase________.
If the demand for an item decreases, it means customers are not willing to buy it. Therefore, customers will have
alternative of the complementary goods where their demand will increase.
3. The Atkins diet (promoting the virtues of a low carbohydrate food intake) became very popular in the
U.S.A. This worried the pasta industry because it thought that pasta (a high-carb food) demand would
likely:
The pasta industry worried because it thought the demand for a high-carb food would likely
decrease. This reason of demand decreasing was due to consumer tastes and preferences who were
likely to shift to low carbohydrate food intake that was healthy for their diets.
4. Lattes are expensive coffee drinks. If people’s spendable income increases (perhaps wages have
increased due to tight labor markets), the demand for Lattes, a normal good, is likely to
___decrease____________.
Increasing people’s spendable income, means people have money and their purchasing power for
Lattes will increase leading them to buy more of Lattes coffee drinks than a normal lattes, thus
demand for a normal lattes to decrease while lattes coffee drinks increases.
5. CNN Today (8-16-04) noted that orange juice is a high-carb drink. The diet rage at the time was the
Atkins (low-carb) diet. Therefore, the demand for conventional orange juice concentrate was likely to
decrease relative to its supply. Thus orange growers were likely to see the price of their oranges used
for making orange concentrate _____decrease____________.
This is because the demand for the orange concentrate will decrease, thus means the prices will also go
down or decrease. The supply can be high but demand can be low.
Variables typically included in a multivariate supply function (other than the price and quantity of the item the
supply function represents) are prices of other goods that use similar input resources for production,
expectations, the number of suppliers, techniques of production, taxes and subsidies, prices of input resources,
and weather. Please answer the following questions about the affect changes in other variables might have on
Name __________________________ 4 [worth 50 points]
If in doubt, explain your choice with a sentence of two.
Variables typically included in a multivariate demand function (other than the price and quantity of the item the
demand function represents) are consumer tastes and preferences, the number of buyers, spendable
(disposable) income, prices of substitute goods, prices of complementary goods, advertising expenditures,
weather, and expectations. Recalling that the price of the item being considered is placed on the vertical axis,
and the quantity on the horizontal axis, the other variables are termed demand shifters. Please answer the
following questions about the affect changes in other variables might have on the demand for the item. These
changes will either cause demand to increase (shift right) or decrease (shift left). Use either word as
applicable, for the short answer.
1. If the future prices of the good being considered are expected to decrease, then present demand
for the good being considered will likely:
If the future prices decreases, then present demand of the goods will definitely increase. This is
because many people will have purchasing power for the goods due of their low prices.
2. If the demand for a good decreases then the demand for a complementary good will likely
_to__increase________.
If the demand for an item decreases, it means customers are not willing to buy it. Therefore, customers will have
alternative of the complementary goods where their demand will increase.
3. The Atkins diet (promoting the virtues of a low carbohydrate food intake) became very popular in the
U.S.A. This worried the pasta industry because it thought that pasta (a high-carb food) demand would
likely:
The pasta industry worried because it thought the demand for a high-carb food would likely
decrease. This reason of demand decreasing was due to consumer tastes and preferences who were
likely to shift to low carbohydrate food intake that was healthy for their diets.
4. Lattes are expensive coffee drinks. If people’s spendable income increases (perhaps wages have
increased due to tight labor markets), the demand for Lattes, a normal good, is likely to
___decrease____________.
Increasing people’s spendable income, means people have money and their purchasing power for
Lattes will increase leading them to buy more of Lattes coffee drinks than a normal lattes, thus
demand for a normal lattes to decrease while lattes coffee drinks increases.
5. CNN Today (8-16-04) noted that orange juice is a high-carb drink. The diet rage at the time was the
Atkins (low-carb) diet. Therefore, the demand for conventional orange juice concentrate was likely to
decrease relative to its supply. Thus orange growers were likely to see the price of their oranges used
for making orange concentrate _____decrease____________.
This is because the demand for the orange concentrate will decrease, thus means the prices will also go
down or decrease. The supply can be high but demand can be low.
Variables typically included in a multivariate supply function (other than the price and quantity of the item the
supply function represents) are prices of other goods that use similar input resources for production,
expectations, the number of suppliers, techniques of production, taxes and subsidies, prices of input resources,
and weather. Please answer the following questions about the affect changes in other variables might have on
