WHAT ARE THE FACTORS WHICH CAN CAUSE A CHANGE IN DEMAND? Aim: To understand the factors which influence demand.
Mar 31, 2015
WHAT ARE THE FACTORS WHICH CAN CAUSE A CHANGE IN DEMAND?Aim: To understand the factors which influence demand.
THE DEMAND SCHEDULE
Demand schedule: A table that shows the relationship between the price of a good and the quantity demanded.
Example: Helen’s demand for lattes.
Price of
lattes
Quantity of lattes
demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4 Notice that Helen’s preferences obey the Law of Demand.
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 5 10 15
Price of
Lattes
Quantity of
Lattes
HELEN’S DEMAND SCHEDULE & CURVEPrice
of lattes
Quantity of lattes
demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4
MARKET DEMAND VERSUS INDIVIDUAL DEMAND The quantity demanded in the market is the sum of
the quantities demanded by all buyers at each price. Suppose Helen and Ken are the only two buyers in the
Latte market. (Qd = quantity demanded)
4
6
8
10
12
14
16
Helen’s Qd
2
3
4
5
6
7
8
Ken’s Qd
+
+
+
+
=
=
=
=
6
9
12
15
+ = 18
+ = 21
+ = 24
Market Qd
$0.00
6.00
5.00
4.00
3.00
2.00
1.00
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 5 10 15 20 25
P
Q
THE MARKET DEMAND CURVE FOR LATTES
PQd
(Market)
$0.00 24
1.00 21
2.00 18
3.00 15
4.00 12
5.00 9
6.00 6
DEMAND CURVE SHIFTERS
The demand curve shows how price affects quantity demanded, other things being equal.
These “other things” are non-price determinants of demand (i.e., things that determine buyers’ demand for a good, other than the good’s price).
Changes in them shift the D curve…
CONDITIONS WHICH CAN CHANGE THE DEMAND- A SHIFT IN THE CURVE.
A consumers IncomeMay effect different types of goods in different
ways1. Normal2. Inferior Consumer preferences or tastes Prices of related goods- there are two types
of related good1. Compliments2. Substitutes Numbers of buyer in a market
INCOME
In most cases an increase in the a consumers income will result in an increase in demand for a commodity. Even though price has not changed, demand conditions have changed, consumers are able to spend more and purchase more at each price.
1. List all the ways you can think of which could increase consumer income?
INCOME CAN INCREASE BECAUSE……
Increase in wages, salaries Increase in profits, which increase dividends
and returns to shareholders Increase in interest earned on money in the
bank Increase in such things as benefits, pensions,
or an inheritance. Decrease in income tax
DEMAND CURVE SHIFTERS: INCOME
Demand for a normal good is positively related to income. An increase in income causes
increase in the amount demanded at each price, shifting the D curve to the right.
(Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.)
Create two pictures to show a definition for the two different types of goods.
COMPLETE ACTIVITIES IN FULL, ADD AS MUCH DETAIL TO ANSWERS AS YOU CAN.
Page 15 for more info1. Suggest three detailed reasons for an increase in
household incomes2. How would a decrease in income affect the demand
for most goods?3. Distinguish between normal and inferior goods,
give examples for each4. Explain how an increase in income tax will affect
the demand for:1. Normal goods2. Inferior goods
5. Suggest what types of firm would do well in a recession where normal income decreases. (use economic theory to back up your ideas)
DEMAND CURVE SHIFTERS: # OF BUYERS An increase in the number of buyers causes
an increase in quantity demanded at each price, which shifts the demand curve to the right.
CH
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4 T
HE M
AR
KET FO
RC
ES O
F SU
PPLY
AN
D D
EM
AN
D
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 5 10 15 20 25 30
P
Q
Suppose the number of buyers increases. Then, at each price, quantity demanded will increase (by 5 in this example).
Demand Curve Shifters: # of buyers
DEMAND CURVE SHIFTERS: PRICES OF RELATED
GOODS Two goods are substitutes if
an increase in the price of one causes an increase in demand for the other.
Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right.
Other examples: Coke and Pepsi, laptops and desktop computers, compact discs and music downloads
DEMAND CURVE SHIFTERS: PRICES OF RELATED
GOODS Two goods are complements if
an increase in the price of one causes a fall in demand for the other.
Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left.
Other examples: college tuition and textbooks, bagels and cream cheese, eggs and bacon
DEMAND CURVE SHIFTERS: TASTES
Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right.
Example: The Atkins diet became popular in the ’90s, caused an increase in demand for eggs, shifted the egg demand curve to the right.
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DEMAND CURVE SHIFTERS: EXPECTATIONS Expectations affect consumers’ buying decisions. Examples:
If people expect their incomes to rise, their demand for meals at expensive restaurants may increase now.
If the economy turns bad and people worry about their future job security, demand for new autos may fall now.
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SUMMARY: VARIABLES THAT AFFECT DEMAND
Variable A change in this variable…
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D D
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Price …causes a movement along the D curve
No. of buyers …shifts the D curve
Income …shifts the D curve
Price ofrelated goods …shifts the D curve
Tastes …shifts the D curve
Expectations …shifts the D curve
A C T I V E L E A R N I N G 1: Demand curve
A. The price of iPods falls
B. The price of music downloads falls
C. The price of compact discs falls
20
Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why?
A C T I V E L E A R N I N G 1: A. price of iPods falls
21
Q2
Price of music
down-loads
Quantity of music downloads
D1D2
P1
Q1
Music downloads and iPods are complements.
A fall in price of iPods shifts the demand curve for music downloads to the right.
Music downloads and iPods are complements.
A fall in price of iPods shifts the demand curve for music downloads to the right.
A C T I V E L E A R N I N G 1: B. price of music downloads falls
22
The D curve does not shift. Move down along curve to a point with lower P, higher Q.
The D curve does not shift. Move down along curve to a point with lower P, higher Q.
Price of music
down-loads
Quantity of music downloads
D1
P1
Q1 Q2
P2
A C T I V E L E A R N I N G 1: C. price of CDs falls
23
P1
Q1
CDs and music downloads are substitutes.
A fall in price of CDs shifts demand for music downloads to the left.
CDs and music downloads are substitutes.
A fall in price of CDs shifts demand for music downloads to the left.
Price of music
down-loads
Quantity of music downloads
D1D2
Q2