Many things can shift a demand or supply curve and students often get confused about which curve they should be shifting. There is, however an easy way to decide. Remember, the price does not change straight away, it changes because a change in demand or supply creates a shortage or surplus. The key question to ask is "If the price stayed the same, who would care?".
Take the often confused example of an indirect tax (a tax on spending). This shifts the supply curve. If the government places a tax on the sale of a good and the price stayed the same, consumers wouldn't care. They are not interested in what proportion of the price goes to the firm and what to the government, only how much they pay overall. The producer on the other hand is now keeping less of the money from each sale as some is going to the government and so they will offer less at the same price.
This video tutorial takes you through what happens after this shift in supply, how the new market price is reached and how much of the tax will be passed on to the consumer in increased prices. If you are a little unsure on how to draw a demand and supply diagram, I suggest that you have a look at the demand and supply tutorial first or you may not follow everything that is going on.
Unfortunately at the moment the tutorials are only available using flash so they may not work on mobile devices.
Demand and supply diagrams are the basic building blocks for Microeconomics. It is important that you are able to draw them confidently and understand how they work. Drawn with price (per unit) on the vertical axis, and quantity on the x axis, demand and supply diagrams show 2 things at once.
Where these 2 meet there will be neither a surplus or a shortage - equilibrium. The market doesn't just move to equilibrium straight away, however. The price mechanism uses the rationing, signaling and incentive functions of prices to reach equilibrium.
This tutorial will talk you though drawing the diagram.
Unfortunately at the moment the tutorials are only available using flash so they may not work on mobile devices.
