# What are the factors which can cause a change in Demand

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```					WHAT ARE THE FACTORS WHICH
CAN CAUSE A CHANGE IN
DEMAND?
Aim: To understand the factors which influence
demand.
THE DEMAND SCHEDULE
Price Quantity
   Demand schedule:
of    of lattes
A table that shows the
lattes demanded
relationship between the price
of a good and the quantity       \$0.00     16
demanded.                        1.00      14
   Example:                         2.00      12
Helen’s demand for lattes.       3.00      10
4.00       8
5.00       6
 Notice that Helen’s                6.00       4
preferences obey the
Law of Demand.
HELEN’S DEMAND SCHEDULE & CURVE
Price                             Price Quantity
of                             of    of lattes
Lattes
\$6.00                              lattes demanded
\$0.00      16
\$5.00
1.00      14
\$4.00                              2.00      12
\$3.00                              3.00      10
\$2.00                              4.00       8
5.00       6
\$1.00
6.00       4
\$0.00
Quantit
0      5    10    15  y of
Lattes
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)

Price   Helen’s Qd       Ken’s Qd       Market Qd
\$0.00       16        +      8       =      24
1.00       14        +      7       =      21
2.00       12        +      6       =      18
3.00       10        +      5       =      15
4.00        8        +      4       =      12
5.00        6        +      3       =      9
6.00        4        +      2       =      6
THE MARKET DEMAND CURVE FOR LATTES
Qd
P                                 P
(Market)
\$6.00
\$0.00     24
\$5.00                                    1.00      21
\$4.00                                    2.00      18
3.00      15
\$3.00
4.00      12
\$2.00
5.00       9
\$1.00                                    6.00       6
\$0.00                                Q
0    5   10   15   20   25
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 Income
May effect different types of goods in different ways
1. Normal

2. Inferior

 Consumer preferences or tastes

 Prices of related goods- there are two types of
related good
1. Compliments

2. 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.

1. Suggest three detailed reasons for an increase in
household incomes
2. How would a decrease in income affect the demand
for most goods?
3. Distinguish between normal and inferior goods, give
examples for each
4. Explain how an increase in income tax will affect
the demand for:
1.   Normal goods
2.   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.

OF SUPPLY AND DEMAND
CHAPTER 4 THE MARKET FORCES
Demand Curve Shifters: # of buyers

P                           Suppose the number
Then, at each price,
\$5.00
quantity demanded
\$4.00                               will increase
(by 5 in this
\$3.00
example).
\$2.00
\$1.00
\$0.00                                      Q
0   5   10   15   20   25     30
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,
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.

OF SUPPLY AND DEMAND
CHAPTER 4 THE MARKET FORCES
   Example:
The Atkins diet became popular in the ’90s,
caused an increase in demand for eggs,
shifted the egg demand curve to the right.
DEMAND CURVE SHIFTERS: EXPECTATIONS
   Expectations affect consumers’ buying decisions.
   Examples:
   If people expect their incomes to rise,

OF SUPPLY AND DEMAND
CHAPTER 4 THE MARKET FORCES
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.
SUMMARY: VARIABLES THAT AFFECT DEMAND
Variable         A change in this variable…

Price           …causes a movement
along the D curve

OF SUPPLY AND DEMAND
CHAPTER 4 THE MARKET FORCES
No. of buyers   …shifts the D curve
Income          …shifts the D curve
Price of
related goods   …shifts the D curve
Tastes          …shifts the D curve
Expectations    …shifts the D curve
ACTIVE LEARNING      1:
Demand curve
happens to it in each of the following scenarios?
Why?
A. The price of iPods
falls
B. The price of music
C. The price of compact
discs falls

20
ACTIVE LEARNING        1:
A. price of iPods falls
Price of
music
and iPods are
down-                                     complements.
loads                                    A fall in price of
iPods shifts the
P1
demand curve for
to the right.
D1       D2

Q1     Q2             Quantity of
21
ACTIVE LEARNING     1:

Price of
music
down-                           The D curve
Move down along curve
P1
to a point with lower P,
P2                          higher Q.

D1

Q1   Q2             Quantity of
22
ACTIVE LEARNING         1:
C. price of CDs falls

Price of                            CDs and
down-                              substitutes.
A fall in price of CDs
P1                             shifts demand for
to the left.

D2    D1

Q2    Q1             Quantity of