Applications of Demand and Supply
Read this chapter and attempt the "Try It" exercises. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve after completing these chapters. This will help you prepare for similar types of analyses in the units ahead.
4.1 Putting Demand and Supply to Work
- Technological change, which has caused the supply curve for computing power to shift to the right, is the main reason for the rapid increase in equilibrium quantity and decrease in equilibrium price of personal computers.
- The increase in crude oil and gasoline prices in 2008 was driven primarily by increased demand for crude oil, an increase that was created by economic growth throughout the world. Crude oil and gas prices fell markedly as world economic growth subsided later in the year.
- Higher gasoline prices increased the cost of producing virtually every good and service, shifting supply curves for most goods and services to the left. This tended to push prices up and output down.
- Demand and supply determine prices of shares of corporate stock. The equilibrium price of a share of stock strikes a balance between those who think the stock is worth more and those who think it is worth less than the current price.
- If a company's profits are expected to increase, the demand curve for its stock shifts to the right, and the supply curve shifts to the left, causing equilibrium price to rise. The opposite would occur if a company's profits were expected to decrease.
- Other factors that influence the price of corporate stock include demographic and income changes and the overall health of the economy.