3.2 changes in demand

3.2 Changes in Demand

Introduction to Economics – Gr. 12

Text: Holt EconomicsMr Ahmed Keshk

Do you believe there are factors other than price which affect change in demand for goods and services? Write a list of such factors.

The demand curve is a snapshot of the market during a specific period of time.

Since this picture is taken at a single point in time, the only factor affecting the demand is price. This means that – at the time - nothing but a change in price could have caused a change in the quantity demanded.

↑ or ↓ in price will cause the intersection of the price and QD to move to a new point along the demand curve.

Period of time allows other factors than price to influence demand significantly – in economic terms – to shift the entire demand of a product to the right or left instead of simply causing movement along the demand curve.

Shift to the right increase in demand Shift to the left decrease in demand

A right or left shift in the curve means that a different quantity of the product is demanded at each and every price.

(Non-price factors that cause shifts in demand)

1. Consumer Tastes and Preferences.2. Market Size.3. Income.4. Prices of Related Goods.5. Consumer Expectations.

Changes in consumer tastes and preference can have a major effect on demand for products.

As a market expands, it has more consumers than before creating a greater potential demand and if it contracts, it loses consumers, creating a smaller potential demand.

Market Size Demand Demand CurveMarket Size Demand Demand Curve

Markets expand and contract for several reasons: Decisions by private business. Governments' policy decisions. New technology (creating new products and markets

at the expense of older ones)

Income Spending Demand Demand Curve

Income Spending Demand Demand Curve

Although demand for most goods increases as income rises, a few exceptions exist, i.e., income effect working in reverse (e.g., the higher-priced kabab is purchased rather than the lower-priced falafel).

Change in Income VS Income EffectThe income effect deals with changes in consumers'

purchasing power caused by a change in a product's price (resulting in a change in quantity demanded or movement along the demand curve).

A change in person's income, however, brings a different amount of money to a household (resulting in a total shift in the demand curve as more of the product is bought at the same price).

Demand for a good is often connected to demand for related goods. This means that changes in a product's price can affect demand for the product's related goods.

There are two types of related goods: Substitute Goods. Complementary Goods.

Substitute Goods are goods that can be used to replace similar goods when prices rise. An increase in a products price leads to an increase in demand for the product's substitute. The tendency of consumers to substitute a similar, low priced product for another product that is relatively more expensive. This is called the substitution effect.

Example (beef & chicken): Price of Beef QD Beef Demand for Chicken

Demand Curve Chicken

Complementary Goods are goods that are commonly used with others goods. An increase in a product's price causes a decrease in demand for that product's complementary goods.

Example (paint & paintbrushes): Price of Paint QD Paint Demand of Brushes

Demand Curve Brushes

(The effect of a price change on a product's complementary goods is the opposite of the effect of such a change on that product's substitute goods.)

If consumers anticipate higher future income, they would probably shift demand to the right.

If consumers are pessimistic about their future income, the overall demand for goods and services in the economy decreases.

In your binders, write the answers to the following.

1. Explain how a change in the price of a product affects demand for its substitute goods and its complementary goods.

2. How is a shift in demand different from a change in the quantity demanded?

3. Name the 5 main determinants that can cause shifts in demand. Give at least two examples of howeach of these determinants have affected your demand for a product.

Complete Challenge/Enrichment Activity 3.