Microeconomics

Table of Contents

1. Topic pack - Microeconomics - introduction
2. 1.1 Competitive Markets: Demand and Supply
3. 1.1 Competitive Markets: Demand and Supply - notes
   1. The nature of markets
   2. Types of markets
   3. Market structure
   4. Spectrum of competition
   5. Demand
   6. The law of demand
   7. Individual and market demand
   8. Non-price determinants of demand
   9. Movements along the demand curve
   10. Shifts in the demand curve
   11. Example - shifts and movements along a demand curve
   12. Exceptions to the normal law of demand
   13. Linear demand functions
   14. Linear demand functions - example
   15. The law of supply
   16. Non-price determinants of supply
   17. Movements along the supply curve
   18. Shifts in the supply curve
   19. Shifts and moves of supply curve
   20. The real supply curve?
   21. Linear supply functions
   22. Linear supply functions - example
   23. Market equilibrium
   24. Market equilibrium - notes
   25. Excess demand and excess supply
   26. Example 1 - the market for DVD players
   27. Example 2 - the market for fish
   28. Applications of demand and supply
   29. Calculating market equilibrium
   30. Calculating equilibrium - example
   31. Scarcity and choice
   32. Choice and opportunity cost
   33. Price signalling
   34. Market efficiency - consumer surplus
   35. Market efficiency - producer surplus
   36. Allocative efficiency
4. 1.1 Competitive markets - questions
5. 1.1 Competitive markets - simulations and activities
6. 1.2 Elasticities
7. 1.2 Elasticities - notes
8. Section 1.2 Elasticities - questions
9. Section 1.2 Elasticities - simulations and activities
10. 1.3 Government intervention
11. 1.3 Government Intervention - notes
12. 1.3 Government intervention - questions
13. 1.3 Government intervention - simulations and activities
14. 1.4 Market failure
15. 1.4 Market failure - notes
16. Section 1.4 Market failure - questions
17. Section 1.4 Market failure - simulations and activities
18. 1.5 Theory of the firm
19. 1.5 Theory of the firm - notes (HL only)
20. Section 1.5 Theory of the firm - questions
21. Section 1.5 Theory of the firm - simulations and activities
22. Print View

Example - shifts and movements along a demand curve

Syllabus: Distinguish between movements along the demand curve and shifts of the demand
curve.
• Draw diagrams to show the difference between movements along the demand curve and shifts of the demand curve.

You must be absolutely certain about what causes shifts and movements along a demand curve. Work carefully through the following example.

Just to be very clear - while the following focuses on what determines the position of the demand curve on the graph in IB answers never use a demand curve on its own a graph showing the demand curve shifting position without the supply curve is meaningless you need both to say what happens to price and quantity and therefore make conclusions.

Let´s do Some Economics

Example 1 - Movements along and shifts of a demand curve

The diagram below, Figure 1, represents the demand for a product at a point in time. The price then was P*.

Figure 1 Demand curve

Copy this onto another piece of paper, then sketch on this new diagram the effect of the following changes. Treat each change as a separate change - in other words start each time from Figure 1. Once you have had a go at each one then follow the link below to check you got the change right.

(a) The firm launches a new, effective advertising campaign (change in tastes and fashion - T)

Answer - change (a)

(b) The market price of the product rises to P2. (change in the good´s own price - Po)

Answer - change (b)

(c) The price of a substitute good is reduced. (change in the price of other goods - Pz)

Answer - part (c)

(d) The price of a good falls from P1 to P2. (Po)

Answer - part (d)

(e) The real incomes of the buyers of this desirable product increase significantly. (Y)

Answer - part (e)

(f) There is an increase in the population size and the size of the potential market. (P)

Answer - part (f)

These should not be difficult if you keep calm. Ask yourself three questions:

• Has a 'ceteris paribus' factor (or a non-price determinant of demand other than the price of the good itself) changed? If the answer is yes, then there is a shift of the whole curve.
  
• Will demand increase or decrease? This will determine if the shift is to the right or left - It can cause some people confusion if the demand curve is seen as shifting its position upwards or downwards - if the demand curve shifts downwards then demand has gone up (increased). Say what???? Yes check it out on a diagram. Therefore you need to think shift right (increase) and shift left (decrease) - with one exception and that is to do with supply and tax (more later).
  
• If the price has changed, will there be an extension (increase) or contraction (decrease) of demand?