After studying chapter 4, you MUST be able to

Distinguish between change in demand ( due to changes in other             factors ) and change in quantity demanded ( due to the change in its own price )

State how factors affect demand especially substitutes, complements and income; sketch diagrams

State the effect of a change in demand on equilibrium price and quantity

Define derived demand ( demand for factors of production )

Distinguish between the change in supply ( due to changes in other factors ) and change in quantity supplied ( due to the change in its own price )

State how factors affect supply especially competitive supply, joint supply

State the effect of a change in supply on equilibrium price and quantity

State the effect of changes in both supply and demand on equilibrium price and quantity e.g. increase in supply > increase in demand

First, identify whether the change will affect demand or supply, one change will only affect one curve:

-If consumers are directly affected / affected in the first step - demand will change e.g. income,    taste

-If producers are directly affected / affected in the first step - supply will change e.g. production    cost, technological breakthrough

Second, determine whether the change will increase or decrease the demand or supply

Third, draw the initial equilibrium and label it

-Draw the change on the same diagram, determine the new equilibrium price and quantity

-Write down the descriptions

            e.g. Demand will increase because ?

                    Demand curve will shift to the ?

          Equilibrium price will ? and equilibrium quantity will ? holding all other factors constant

P.S. if there are two changes mentioned in the question, this may mean that both supply and demand will change. There will have three possible cases.

If the question concerns about the effect of the change of good X on good Y, say price of good X increases, how will good Y be affected ?

First identify their relationship : substitutes / complements

Draw a diagram to show the initial equilibrium of good Y

Draw the change on good Y and determine the new equilibrium price and quantity

Write down the description

                e.g. good X and good Y are substitutes

                -increase in price of good X will make consumers switch to buy good Y

                -demand for good Y will increase

                -demand curve of good Y will shift to the right

                -equilibrium price will increase and equilibrium quantity will increase, holding all other factors constant