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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.



Page 15 for more info
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
$6.00                               of buyers increases.
                                    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,
    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.




                                                      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
 Draw a demand curve for music downloads. What
 happens to it in each of the following scenarios?
 Why?
 A. The price of iPods
    falls
 B. The price of music
    downloads falls
 C. The price of compact
    discs falls


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

                Q1     Q2             Quantity of
                                 music downloads
                                                                21
ACTIVE LEARNING     1:
B. price of music downloads falls

Price of
  music
 down-                           The D curve
  loads                          does not shift.
                                 Move down along curve
     P1
                                 to a point with lower P,
     P2                          higher Q.

                        D1

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

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

                        D2    D1

             Q2    Q1             Quantity of
                             music downloads
                                                             23

				
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posted:12/30/2012
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Lingjuan Ma Lingjuan Ma
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