Download Factors Affecting Demand - Flushing Community Schools

Factors Affecting
Demand
• What stops you from buying a product? What makes you
want to buy a product?
• The product is too expensive, out of fashion, or of poor quality.
The product is affordable, popular, or necessary for survival.
• How do businesses decide what to produce?
• Businesses find out what consumers need/want by doing market
research and finding out what is popular/what consumers use.
A Change in the Quantity
Demanded
• What is the effect of a change in price on quantity demanded?
• Main Ideas
• The only event that can cause a change in quantity demanded is a
change in price.
• A change in the quantity demanded due to a change in price is
represented on a demand curve as movement along the curve.
• The income effect is a change in quantity demanded because of a
change in price that makes consumers feel richer or poorer.
• A shift in relative prices may cause a substitution effect, in which
consumers substitute an alternative less expensive product for
one that has become more expensive.
• How is a change in the quantity demanded illustrated on the
demand curve?
• A change in quantity demanded causes movement along the
demand curve. Quantity demanded increases when the price
decreases.
The Income Effect
• The change in quantity demanded because of a change in
price that alters consumers’ income.
• Consider how your purchasing decisions might be affected if
you require two fill-ups per month for your vehicle, and the
price of gasoline rises.
• If the price of gasoline rises, but your income does not, you
obviously cannot continue buying the same amount of gas AND
everything else they normally purchase
• Income Effect can work the opposite way as well.
• If you are already buying two fill-ups a month and the price of
gasoline drops in half, your real income then increases. you will
have more purchasing power and will probably increase your
spending on other goods.
Substitution Effect
• The portion of change in quantity demanded that is due to a
change in a relative price of the good.
• List five goods you use.
• Now list other goods you would buy more of if the prices of the
original goods rose and the substitution effect took hold.
• “When the price of a burrito drops from $5 to $3, burritos
become less expensive than before, in comparison with other
goods and services. As a result, consumers tend to replace a
more costly item – say, pizza- with a less costly one- more
burritos.”
Change in Demand
• Movement OF A demand curve due to people wanting
different quantities at all prices.
• Determinants
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Consumer Income
Consumer Tastes
Price of Substitutes
Price of Complements
Change in Expectations
Number of Consumers
Change in Demand
• What factors, excluding price, affect demand?
• Main Ideas
• When a change in demand occurs, the entire demand curve shifts to
the left or right.
• A change in total consumer income affects how much of a product
consumers buy at all possible prices.
• The demand curve for a product shifts when consumer tastes
change.
• An increase in the price of a product causes an increase in demand
for substitute products and a decrease in demand for the product’s
complements.
• Consumer expectations cause people to demand either more or less
of a good.
• A change in the total number of consumers causes the entire
demand curve to shift right or left.
Consumer Income
• Income up-- people can afford more goods so demand
goes up (Shift Right)
• Income down-- people can’t afford as much so demand
goes down (Shift Left)
Consumer Tastes
• New product or fad demand will go up (Shift Right)
• Fad wears out or people tire of a product demand will go
down (Shift Left)
Price of Substitutes
• Price of substitute down demand for original product
decreases (Shift Left)
• Price of substitute up demand for original product
increases (Shift Right)
Price of Complements
• Price of complement down demand for other
complement up (Shift Right)
• Price of complement up demand for other complement
down (Shift Left)
I’m not talking about
the demand of verbal
complements.
Although,
compliments are
always welcome!
Change in Expectations
• New innovations or products coming into an industry
may decrease demand (Shift Left)
• May increase demand in certain cases of weather (Shift
Right)
Number of Consumers
• More people enter in demand goes up (Shift Right)
• People leave demand goes down (Shift Left)
• What eventually would happen to the demand curve for toys
if the birthrate declined? Why?
• The demand curve would shift to the left, because there would be
a decline in demand for toys at each and every price
A disease destroys much of the
coffee crop in South America
• How might this affect the price of coffee?
• The price increases
• How might this affect the demand for substitute products?
• Demand for substitute drinks, such as tea or soft drinks, should
increase.
• How might this affect the demand for complementary
products?
• Demand for complementary products, such as sugar or coffee
creamer, should decrease.
DO YOU KNOW?
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What causes a change in QD???
What causes a change in Demand???
Which way Demand Curves shift???
How the Factors of Demand work???