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If, for example, Health Canada issues a public statement that states eating pizza is good for your overall physical health, would this result in both a shift in the demand curve for pizza to the right, and a shift in the supply curve of pizza to the right?

If not, could you give more information on when this would actually happen?

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2 Answers 2

up vote 3 down vote accepted

To answer your first question: No, it shifts out only the demand curve but not the supply curve. However, the quantity supplied increases.

To understand why the advertisement does only shift out the demand curve but not the supply, you have to understand two important concepts:

(1) Shift of the demand curve = Increase of demand; (2) Movement along the demand curve = Increase of quantity demanded.

Similarly with supply:

(1) Shift of supply curve = Increase of supply; (2) Movement along the supply curve = Increase of quantity supplied.

Now what happens, if you advertise for pizza? The demand as well as the quantity supplied increase. To see this, consider the following. More people demand pizza so the demand curve shift out and the demand increases. At the same time, the supply curve does not move. BUT, the outwards shift of the demand curve intersects the supply curve further to the right, and hence, the quantity supplied increases.

Shifts of the demand curve can be caused, for example, when people's income increases or decreases. Demand increases usually increase the quantity supplied.

Shifts of the supply curve can be caused, for example, through the the use of better technology that lowers producers marginal production costs. Supply increase usually increases the quantity demanded.

Increases or decreases of quantity demanded or quantity supplied can be caused through price changes.

A simultaneous increase of demand and supply can be cause if consumers get a higher income and firms get a better technology at the same time.

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Very good answer. Would like to just add one minor point that I like to tell my students. The curves represent the relation between quantity and price. This is known from the axes. As long as quantity (supplied in this case) chages due to a change in price, there is no shift in the curve since that relationship is already there. There's only a shift if something else causes the change. Here demand changes not due to price, but due to commercial - a relationship not on any axis -> shift. Supply changes as excess demand puts pressure to increase prices which increases supply -> no shift. –  BB King Sep 27 at 20:07

Indeed it can shift the supply curve. You would see that nowadays a ton of firms are labeling themselves as 'responsible' towards making the world better in situations even though this might hurt their profits.

One can claim that this is an attempt to bring in more cash as the customer appreciation for this company policy increases profit channels above that of the costs of the assumed responsibility. However, a less cynical (or naive) perspective might think that there are firms which are acting responsibly regardless of the monetary consequences.

If one buys the second interpretation above, then we would start seeing firms who previously would reject to produce pizza at a given price changing their decisions towards the alternative. This argument would imply that supply curve shifts right.

It should be apparent that I favor the premise that implies no-shift on the supply side. On the other hand, given that the question is asked in a fashion to understand fundamentals, rather than the pizza industry, I try to communicate the message that in principle the shifts in both sides of the market is possible.

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