Determinants of Supply and Demand 3-1© 2012 McGraw-Hill Ryerson Limited LO1 Determinants of DemandDeterminants of Supply Consumer preferencesPrices of.

Determinants of Supply and Demand

3-1© 2012 McGraw-Hill Ryerson Limited

LO1

Determinants of Demand Determinants of SupplyConsumer preferences Prices of productive resources

Consumer incomes Business taxes

Prices of related products Technology

Expectations of future prices, incomes, or availability

Prices of substitutes in production

Population: its size, income distribution, and age

Future expectations of suppliers

Distribution Number of suppliers

Simultaneous Changes in Supply and Demand

• Increase in both demand and supply leads to an increase in equilibrium quantity; price may rise or fall

3-2© 2012 McGraw-Hill Ryerson Limited

LO1

Self-Test Explain what effect the changes will have on equilibrium price

and quantity in the following markets:

3-3© 2012 McGraw-Hill Ryerson Limited

LO1

Market Changea)Day-care

services

More mothers with small children are returning to the labour force; at the same time, government decides to introduce subsidies for day-care operators.

b) Marijuana Government severely increases the penalties for both buying and selling marijuana.

c) Compact discs

A new processing method significantly reduces the costs of producing CDs; at the same time, more consumers download music directly onto their computers.

d)Organic vegetables

Vegetarianism increases as a result of medical reports extolling its health benefits; at the same time, tighter regulations on the definition of organically grown products are introduced.

Market Changea)Day-care

services

b) Marijuana

c) Compact discs

d)Organic vegetables

Self-Test Explain what effect the changes will have on equilibrium price

and quantity in the following markets:

3-4© 2012 McGraw-Hill Ryerson Limited

LO1