Unit 4 Introductory Worksheet Complete the following activities: P On the graph to the right, draw a demand curve to your liking. Pick any price and label it P1, identify the corresponding quanti ty 3 Q1' Pick a new price labeled P2 , is it an increase or decrease relative to P1? Identify the quantity (Q2) that corresponds to P2. Did the quan tity increase or decrease relative to Q1? On the graph to the right, draw a P Supply curve to your liking. Pick any price and label it P1, identify the corresponding quanti tY,Q1- Pick a new price labeled P2 , is it an increase or decrease relative to P1? Identify the quantity (Q2) that corresponds to P2. Did the quan tity increase or decrease relative to Q1? On the graph to the right, draw a P demand curve to your liking. Pick any price and label it P1, identify the corresponding quanti tY , Q1- There is a (demand shift factor of your choice). It causes demand to (increase / decrease). Given the price P1, What has hap pened to the quantity demanded. On the graph to the right, draw a P Supply curve to your liking. Pick any price and label it P1, identify the corresponding quanti ty , Q1. There is a (Supply shift factor of your choice). It causes supply to (increa se/ decrease). Given the price P1, What has hap pened to the quantity supplied. The graph above demonstrates the demand for llamas. The demand curve shows the schedule of goods demanded at various prices given current conditions. We can see that when the price is P1, the quantity Q1 is demanded. In this course we will use the convention of labeling the point on the demand curve thubsm-Pt]. If the price were lowered to P2 we would see a movement along the demand curve from Qd1 to de. 0 This movement is known as a change in quantity demanded. This movement along the curve will only be caused by a change in price. 0 It is vital to distinguish this from a change in demand. Llamas Q In the graph above a shift in demand occurs. A shift to the left is a decrease in demand (demonstrated above); a shift to the right is an increase in demand. A decrease in demand means that at any given price, fewer llamas are demanded compared to the original demand curve D1. So what causes a shift in the demand curve? David Colander, the text's author identies ve (5) primary shift factors for demand. I've added a 6th. 1' Changes in Incom As society's income increases we expect to see a general increase in demand for most goods (not all). People have more to spend and they do. 2. Change in the Price of a Related Good As the prices of other goods change, it can have a dramatic effect on the demand for the product in question. If goods tend to be consumed together, a rise in the price of one will decrease the demand for the other. If goods are substitutes, the relationship will be opposite. If the price of one good goes up, we expect people to buy more of the alternative. 3. Taxes 0r Subsidies If the government taxes a product or makes it cheaper through subsidies, we expect to see a fundamental change in how much of the product is purchased at all price levels. 4- Tastes As the saying goes, \"there is no accounting for tastes\". More importantly, tastes in society are always changing. As the popularity for a product waxes and wanes we will see corresponding shifts in the demand curve for that product. 5. Expectation Economic decisions are always made within the context of a period of time. People's beliefs about the future have a strong inuence on their demand for a product. For example, if people expect a product to go on sale in the near future, demand in the current period may be depressed. Alternatively, if people expect prices to rise in the future they may want to buy the product before the increase in price occurs; causing an increase in demand in the current period. Changes in the Number of Consumers If 6- there is a change in the number of buyers (ceteris paribus) then more of a product will be purchased at any given price. Remember: A shift to the right % is an increase in demand. A shift to the left