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Movement along a Demand Curve
vs.
Shifting the Demand Curve
Price
Price
P
P1
P
Demand
Quantity
Q
Q1
Quantity
Q Q1
D D1
Law of Demand
Holding all other things
constant (ceretis paribus),
a decrease in price will
result in an increase in
quantity demanded
Price
P
P1
Demand
Quantity
Q
Q1
Movement along a Demand Curve
As the price declines from
P to P1, the quantity
________ from Q to Q1.
Price
P
P1
Demand
Quantity
Q
Q1
Movement along a Demand Curve
As the price declines from
P to P1, the quantity
increases from Q to Q1.
Price
P
P1
The Law of Demand
Demand
Quantity
Q
Q1
Price
Shift in Demand
Factors that shift demand:
1. Consumer income
2. Preference (consumer tastes)
3. Price of substitute or related good
4. Price of complementary good
5. Expectations about income or prices
6. Number of consumers (population)
P
“Determinants of Demand”
D
Quantity
Q
Q1
D1
Factors that shift demand
Price
1. Consumer income
- More income leads to increased
demand
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Price
Factors that shift demand
1. Consumer income
- More income leads to increased
demand
- Less income leads to decrease in
demand
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Factors that shift demand
Price
2. Preference (consumer tastes)
- Favorable change leads to increased
demand
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Price
Factors that shift demand
2. Preference (consumer tastes)
- Favorable change leads to increased
demand
- Unfavorable change leads to
decrease in demand
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Price
Factors that shift demand
3. Price of substitute or related good
Substitutes can be used in place of each
other
- If the price of a good increases,
demand for the substitute increases
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Price
Factors that shift demand
3. Price of substitute or related good
Substitutes can be used in place of each
other
- If the price of a good increases,
demand for the substitute increases
- If the price of a good decreases.
demand for the substitute decreases
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Factors that shift demand
Price
4. Price of complementary good
Goods that are used together
- If the price of a good increases, demand
for the complementary decreases
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Price
Factors that shift demand
4. Price of complementary good
Goods that are used together
- If the price of a good increases, demand
for the complementary decreases
- If the price of a good decreases,
demand for the complementary
increases
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Factors that shift demand
Price
5. Expectations about income or prices
- If the price is expected to increase,
demand will increase
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Price
Factors that shift demand
5. Expectations about income or prices
- If the price is expected to increase,
demand will increase
- If the price is expected to decrease,
demand will decrease
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Factors that shift demand
Price
6. Number of consumers (population)
- If the population increases,
demand will increase
P
D
Quantity
Q
Q1
D1
“Determinants of Demand”
Price
Factors that shift demand
6. Number of consumers (population)
- If the population increases,
demand will increase
- If the population decreases,
demand will decrease
P
D1
Quantity
Q1
Q
D
“Determinants of Demand”
Shift in Demand
Price
Increase in demand from
D to D1 shows that at the
same price (P), the quantity
_________ from Q to Q1.
P
D
Quantity
Q
Q1
D1
Shift in Demand
Price
Increase in demand from
D to D1 shows that at the
same price (P), the quantity
increases from Q to Q1.
P
D
Quantity
Q
Q1
D1
Movement along a Demand Curve
vs.
Shifting the Demand Curve
Price
Price
P
P1
P
Demand
Quantity
Q
Q1
Quantity
Q Q1
D D1