Thursday, May 15, 2008

Shifts in Demand


Market prices move up and down because of changes in the supply and demand for the particular product. The following example illustrates how a change in demand changes the equilibrium price.

Beef Market Example

Suppose a report on national television suggests that eating beef is bad for your health.
Would this affect the market price for beef? The report suggesting beef may be harmful causes the demand for beef to decrease. This means the DEMAND CURVE shifts left. No matter what the price of beef is, people want less of it. If nothing else changes, what has happened to the equilibrium price of beef?

Since the supply curve has not shifted and the demand curve has shifted left, the new intersection occurs at a lower price and smaller quantity than the initial equilibrium point. The published report caused the equilibrium price and quantity of beef to fall. (This was the basis of a lawsuit filed by representatives of the beef industry against talk show host Oprah Winfrey in 1997.)

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