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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
