Download The Demand Curve Shifts

LAW OF DEMAND
When price goes up quantity
demand decreases, and
when price goes down quantity
demanded increases
Several factors will cause the quantity
demanded at every price to change
$4
1
3
$3
2
4
$2
3
5
$1
4
6
Price
Price
Demand Curve
Quantity
Demanded
5
4
3
2
1
0
1
2
3
Quantity Demanded
4
Can you come up with the 5 factors economists have identified
that would cause this increase in quantity demanded at every
price?
What Causes the Demand Curve to Shift?
Five factors cause the demand curve to shift:
• TINER!
• Changes in tastes or preferences
• Change in income
• Change in the number of buyers in the
market
• Change in expectations
• Change in the price of
of future price
related goods
Demand Curve Shifts
If demand for a good
increases the demand
curve to the right.
If demand for a good
decreases the demand
curve to the left
1. Tastes or Preferences
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advertises for
Smartwater.
2. Income
Description:
• As income changes, people may buy more or less of a
particular good—BUT it depends on the type of good it is
As it turns out, those were the droids you
were looking for.
Change in Income Cont.
Suppose you got fired—what will
happen to your consumption of these?
Change in Income Cont.
Normal goods are goods for which the demand
rises as income rises and falls as income falls
Change in Income Cont.
Suppose you got fired—what will happen to
your consumption of these?
Change in Income Cont.
Inferior goods are goods for which the demand falls as
income rises and rises as income falls
Change in Income Cont.
Suppose you got fired—what will happen to
your consumption of these?
Change in Income Cont.
Neutral goods are goods for which the demand remains
unchanged as income rises or falls
3. Number of Buyers in the market
• The demand for a good in a particular market area is
related to the number of buyers in the area
3. Number of Buyers in the market
• The demand for a good in a particular market area is
related to the number of buyers in the area
Description:
The more buyers, the higher the demand
• The fewer buyers, the lower the demand
4. Expectations of Future Price
4. Expectations of Future Price
If you were looking to buy a house in
Seattle and read this, what would you do?
4. Expectations of Future Price
Description:
• Buyers who expect the price of a good to be higher in the future
may buy the good NOW, thus increasing the current demand
• Buyers who expect the price of a good to be lower in the future
may WAIT until the future to buy the good, thus decreasing
the current demand for the good
5. Prices of Related Goods
Demand for goods is affected by the prices of related
goods
• Price of Peanut Butter Increases
• What happens to the demand for jelly?
5. Prices of Related Goods
Demand for goods is affected by the prices of related
goods
• Price of Hot Dogs Decreases
• What happens to the demand for hot dog buns?
5. Prices of Related Goods
Description:
• Complements are goods that are consumed
jointly with another good.
• With complements, the price of one and the demand for
the other move in opposite directions
•
P of peanut butter
•
P of hot dogs
demand for jelly
demand for hot dog buns
5. Prices of Related Goods
Demand for goods is affected by the prices of related
goods
• Price of Donuts Increases
• What happens to the demand for Danishes?
5. Prices of Related Goods
Demand for goods is affected by the prices of related
goods
• Price of Apples Decreases
• What happens to the demand for oranges?
5. Prices of Related Goods
Description:
• Substitutes are similar goods.
• With substitutes, the price of one and the demand for the
other move in the same direction
•
P of Donuts
demand for Danishes
•
P of apples
demand for oranges