Download Demand: A Change in Quantity and a Change in Demand

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* Demand represents the maximum quantity of a
particular good that consumers are willing and
able to buy during a specified time period. The
fundamental character of the concept of
demand is the relationship between the price
of a good and the maximum quantity that is
demanded and is described by the Law of
Demand.
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* There are two types of Demand:
* 1. A change in a quantity demanded
* A. The Income Effect- the change in quantity
demanded because of a change in price that
alters the consumer’s real income.
* B.
The Substitution Effect- is the change in
quantity demanded because of the change in
the relative price of the product.
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1.
A change in quantity demanded:
* We can also use this demand curve
to see the effect of a change in the
price of the product: as the price of
a bottle of wine falls, we move from
the top point on the graph to the
middle point on the graph, to the
bottom point on the graph. The only
effect of a change in the price of
the product is to move from one
point on the demand curve to
another point on the demand curve.
So a "change in quantity demanded"
is shown on the graph as a movement
from one point on a demand curve
to another point on the same
demand curve.
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* But what if something else changes? For
example, how would we graph the change in
tastes and preferences (caused by the release
of medical studies showing health benefits of
red wine)? The price per case of wine does
not change, but other factors such as tastes
and preferences will cause a change in
demand.
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* A change in demand- consumers demand different
amounts at ever price, causing the demand curve to
shift to the right (increase) and to the left
(decrease).
* The price of the consumer good stayed the same
but changes in income, taste/preferences,
substitutes, complements, changes in expectations,
and the number of consumers in the market will
cause the demand curve to shift to the right or to
the left.
*
* So a "change in
demand" is shown by a
shift in the entire
demand curve - it
requires us to draw an
entirely new demand
curve
*
* 1.
Consumer Income- changes in consumer income
can cause a change in demand.
* When your income goes up, you can afford to buy
more goods and services. As incomes rise,
consumers are able to buy more products and each
and every price. When this happens, the demand
curve shifts to the right.
* The exact opposite occurs if there was a decrease
in income. The loss of income would cause them to
buy less of the good and the demand curve then
shifts to the left.
*
* 2.
Consumer tastes- Consumers do not always
want the same things. Advertising, new
reports, fashion trends, the introduction of
new products, and even changes in the season
can affect consumer tastes.
* In style- large demand- demand curve shifts to
the right
* Out of style- smaller demand-demand curve
shifts to the left.
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* 3.
Substitutes- they can be used in place of
other products.
* Example: butter and margarine- a rise in the
price of butter can cause an increase in the
demand for margarine.
* The price of the margarine did not change, but
the demand went up, therefore, the curve
would shift to the right.
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* 4. Complements-other related goods are
known as complements, because the use of one
increases the use of the other.
* Example: personal computers and software are
two complementary goods. When the price of
computers decreases, consumers buy more
computers and software. If the price of
computers spirals upward, consumers would
buy fewer computers and less software.
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* 5. Changes in Expectations- refer to the way
people think about the future.
* Example: A leading maker of audio products
announces a technological breakthrough that would
allow more music to be recorded on a smaller disk
at a lower cost than before. Even if the new
product might not be available for another year,
some consumers might decide to buy fewer musical
CDs today simply because they want to wait for a
better product.
* Purchasing less would cause the demand to decline
and the demand curve would shift to the left.
*
* 6.
Number of consumers- An increase in the
number of consumers can cause the market
demand curve to shift.
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