Download Consumer ChoiCe and demand

Module-8
C onsumer choice
and demand :
Higher price, less consumption
TEACHER’S GUIDE
P. 231Defined
P. 235Content standards
P. 236Materials
P. 236Procedure
P. 240Closure
P. 241Assessment
P. 245Overheads
P. 2602Answer key
Visuals N
Visuals for overhead projector.
Copy to transparent paper for overhead.
P. 246NVisual-1: Demand defined
P. 247NVisual-2: Donut demand
P. 248NVisual-3: CD demand
P. 249NVisual-4: Movie schedule, income = $30
P. 250NVisual-5: Movie schedule, income = $60
P. 251NVisual-6: Change in quantity demanded
P. 252NVisual-7: Change in demand
Lessons 2
Copy and handout to students.
P. 2542 Lesson-I: Demand and price
P. 2562 Lesson-II: Demand shifters
P. 2602 Lesson assessment
Consumer choice and demand
Higher price, less consumption
Module-8
Teacher
DEFINED
H
ouseholds buy many goods and services. We can think of the many
goods and services they buy in a typical week or month being
placed in a large basket. The total amount of the goods and services
in the basket is limited by their income and the price of each good or
service. How much of any one good or service do you consume? What
affects your consumption decision?
Consumption means the purchase of a good or service for use now
or later. This is an important component of economics, and plays a
critical role in decision making. The quantity of a good or service that
consumers purchase depends on many variables. The law of demand
states that when the price of a commodity rises and nothing else changes,
the quantity consumed declines. The law of demand is true for a number
of reasons. First, income is limited.
Assume you have an income of $10 and the only good or service
you can buy is an apple. If the price of an apple is $1, you can buy
10 apples. If the price of apples increases to $2, you can only buy 5
apples.
Suppose now you can buy two commodities, apples or oranges. If
your income is still $10 and both apples and oranges are $1 a piece,
you can buy some combination of apples and oranges up to 10 pieces
of fruit. You can exchange one apple for one orange. In other words,
the opportunity cost of one apple is one orange. The opportunity cost
of one orange is one apple. Assume you buy 5 apples and 5 oranges
with your $10. Now, if the price of apples increases to $2 you can
only buy 10 pieces of fruit if you buy all oranges. The higher price of
apples forces you to substitute oranges for apples or buy less fruit. The
opportunity cost has changed. You now must give up 2 oranges for one
apple. The opportunity cost for an apple is 2 oranges. The opportunity
cost for an orange is half an apple.
If income does not change, when the price of one commodity rises,
not enough money is available to maintain consumption of the same
basket of goods previously consumed. (A basket of goods is made up
of all goods and services consumed in some given time frame such as
a week or month.) In addition, when the price of one good goes up,
the opportunity cost to consume that good also rises. Maintaining the
original consumption level of that good means that we have to give up
some consumption of other goods. Remember from module two, price
is a reflection of opportunity cost.
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Module-8
Teacher
The law of demand tells us there is an inverse or negative relationship
between the price of a commodity and the quantity that will be
consumed, if everything else remains the same. If price increases, less
will be consumed. If price decreases, more will be consumed. When
the price of an item changes, quantity demanded also changes. This is
reflected in the demand curve.
The figure shows the quantity of Macintosh apples that will be
purchased at a given price. At a price of $4 per pound, one pound of
Macintosh apples will be purchased. If the price increases to $6 per
pound, fewer Macintosh apples, only half a pound, will be purchased,
shown at point B. As shown at point C, at a lower price of $2 per pound,
more Macintosh apples, one and one-half pounds, will be purchased.
A change in price causes the quantity demanded to change. This is
shown by a movement along the demand curve. The demand schedule
follows. It shows the quantity demanded at each price. The demand
Price ($ per #)
Demand Curve for Macintosh Apples
$12
$10
$8
$6
$4
$2
$0
B
A
C
Demand
0
0.25
0.5
1
1.5
2
Quantity (# of Apples)
Quantity
(lbs of Apples)
0.00
0.25
0.50
1.00
1.50
2.00
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Price
($ per pound)
$10
$8
$6
$4
$2
$0
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Consumer choice and demand
Higher price, less consumption
Module-8
Teacher
schedule corresponds with the points on the demand curve.
Other variables may also affect the demand for a commodity.
Variables other than a change in price will affect the demand by
shifting the curve. If the incomes of consumers change, the demand
curve will also change. An increase in income will lead to an increase
in the quantity consumed at each price. The number of consumers in
a market, tastes and preferences, and expectations will each influence
demand, as will changes in the prices of related goods. If the price
of Macintosh apples increases, many other types of apples can be
consumed instead. How much do you prefer a Macintosh over a Fuji
or, Red Delicious, or Gala?
When similar commodities are available, often called close
substitutes, it is easy to shift consumption away from the higher priced
item. Buying a Gala apple instead of a Macintosh, for example. A
change in any of these factors will shift the demand curve as shown
below. This is called a change or shift in demand (rather than a change
Price ($ per #)
Demand Curve for Macintosh Apples
$12
$10
$8
$6
$4
$2
$0
D2
Demand
0
0.25
0.5
1
1.5
2
Quantity (# of Apples)
in quantity demanded which is a movement along the demand curve
due to a change in price).
Demand curve D2 is an illustration of an increase in demand. An
increase in demand shifts the demand curve to the right. If the number
of consumers in the market increases (the number of consumers during
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the school year in a university town, for example), the demand curve
will increase and shift it to the right. If health authorities announce that
two Macintosh apples a day will prevent cancer, consumer preferences
would likely adjust by increasing demand, shifting it to the right. If the
price of other apple varieties increases, people will substitute Macintosh
apples for other varieties and there will be an increase in the demand
for Macintosh apples, again, shifting the demand curve to the right. In
each of these cases consumers purchased a greater quantity at each
price and the demand curve shifted to the right. At the original price of
$4 per pound, consumers will now purchase one and one-half pounds
of Macintosh apples instead of just one pound.
Alternatively, when some of the students leave a university town in
the summer, the number of consumers will decline, shifting demand
to the left as shown below. Demand curve D3 shows a decrease in
demand, a shift to the left. If a new crop of fresher, crisper apples is
expected to arrive to market next week, the demand for apples this
week may decline, shifting the demand curve to the left. Alternatively,
a decrease in the price of other apple varieties will decrease the
demand for Macintosh apples, shifting the curve to the left. (Be aware,
a decrease in the price of Macintosh apples is a movement along the
existing curve changing quantity demanded, not changing or shifting
demand.) A change in the price of a related good will shift the demand
for Macintosh apples.
Price ($ per #)
Demand Curve for Macintosh Apples
$12
$10
$8
$6
$4
$2
$0
Demand
D3
0
0.25
0.5
1
1.5
2
Quantity (# of Apples)
234
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Consumer choice and demand
Higher price, less consumption
Module-8
Teacher
CONCEPTS
1. Consumption
2. Demand
3. Law of demand
4. Change in quantity demanded
5. Change or shift in demand
6. Related commodities (substitutes and complements)
OBJECTIVES
1.
2.
3.
4.
Know that consumption is the purchase or use of a good or service.
Understand the law of demand.
Understand why the demand curve is downward sloping.
Know the difference between a change in demand (a shift of the curve)
and a change in quantity demanded (a movement along the curve).
CONTENT STANDARDS
National Content Standards in Economics
1. (Standard-1) Productive resources are limited. Therefore, people
cannot have all the goods and services they want; as a result, they
must choose some things and give up others.
2. (Standard-2) Effective decision making requires comparing the
additional costs of alternatives with the additional benefits.
3. (Standard-7) Markets exist when buyers and sellers interact.
4. (Standard-8) Prices send signals and provide incentives to buyers
and sellers.
Montana Social Studies Content (Standard 5)
1. (Benchmark-1) Identify and explain basic economic concepts.
2. (Benchmark-2) Use basic economic concepts to explain current
and historical events.
TIME REQUIRED
2-3 class periods
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MATERIALS
Donuts (or some other immediately consumable item that students like)
Overhead projector
Transparency pen
Visuals for overhead projector: Copy to transparency.
NVisual-1: Demand defined
NVisual-2: Donut demand
NVisual-3: CD demand
NVisual-4: Movie schedule, income = $30
NVisual-5: Movie schedule, income = $60
NVisual-6: Change in quantity demanded
NVisual-7: Change in demand
Lesson worksheets: Copy for each student.
2 Lesson-I: Demand and price
2 Lesson-II: Demand shifters
2 Lesson assessment
PROCEDURE
1. Economics is the study of choices and the allocation of scarce
resources. An important component of economics is how much of a
commodity (a good or service) to purchase. The quantity consumers
purchase depends on a variety of variables.
LQuestion: Ask students to identify some of these variables.
Answer: Students should identify the price of the commodity,
consumer income, and the price of related commodities. Write
these on the board.
The price of the purchased commodity will be the initial focus
of discussion. Demand relates the price of a commodity and the
quantity purchased at that price. Display NVisual-1: Demand
defined. The law of demand states that there is an inverse relationship
between the price of a commodity and the quantity purchased.
Remind students that the price of a good or service represents the
opportunity cost of that purchase; the amount of other commodities
that must be given up to consume the desired good. A sacrifice is
made for every consumption decision because income is limited.
2. Divvying-up donuts.
a. Bring donuts (or some immediately consumable item the students
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Teacher
Higher price, less consumption
like) to class. Tell the students you are going to sell the donuts.
They must pay you cash for the donuts and they can consume
them after receiving them. Display NVisual-2: Donut demand.
LQuestion: Ask students how many donuts each of them would
like if the donuts were free. Insert the quantity demanded at zero
price on the demand schedule. Ask students how many donuts
they will purchase if the price is $.25 per donut. Note that donuts
must be paid for in cash before they may be consumed. Record
the results.
LQuestion: What if the price is $.50 per donut?
Continue to raise the price as shown in the demand schedule
until only a few donuts are willingly purchased by the students
in the class. Record each price and quantity combination.
b. Graph the resulting price and quantity combinations on the axes
provided at the bottom of the visual. Remind students that the
horizontal axis shows the quantity demanded and the vertical axis
shows the price per unit. This is the class demand for donuts.
c. Notice that the demand curve developed is negative or downward
sloping. The law of demand states that there is an inverse
relationship between the quantity demanded and the price of
that commodity. This is shown on NVisual-1: Demand defined.
If the price of donuts increases, less will be purchased and if
price declines more will be purchased.
3. The negative slope of the demand curve is fundamental to economics
and needs to be well understood. A second factor to understanding
that a demand curve is negatively sloped is to recognize that all
individuals face an income constraint (at least in the short run.) That
income constraint may be because of income level, allowance,
parental imposed spending limit, or net worth.
LQuestion: Ask students if any of them were constrained in their
ability to purchase a donut by their current income.
4. Handout 2 Lesson-I: Demand and price. Give the students time
to read through the handout. Tell them not to work through the
exercises yet. Work through the handout with students explicitly
discussing how price and income affect a given demand curve.
a. The price of the purchased commodity: The law of demand
states that there is an inverse relationship between the quantity
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Higher price, less consumption
demanded and the price of that commodity. As demonstrated
with the donut sales, if the price increases, less will be purchased
and if price declines more will be purchased. Have students
complete section 1 of the price of the purchased commodity,
drawing a demand curve for CDs. The graph is displayed in
NVisual-3: CD demand.
b. Consumer Income: All individuals have a limited or fixed income,
at least in the short run. This is called an income constraint. As
a result, if the price of one commodity goes up, consumers
must purchase less of at least some of the previously consumed
goods and services. Have students work through section 2 of
the movie example on the second page of the handout.
c. Discuss the fact that the demand curve is downward sloping. In
this example it is clear the demand curve is downward sloping
because of the income constraint of $30. For any given income
level, less movies can be purchased as the price increases. The
completed demand schedule is displayed in NVisual-4: Movie
schedule, income = $30. Have students help you trace the
demand curve on the graph.
d. Notice that the graphed demand curve includes only the
movie’s price and quantity. A movement along the demand
curve caused by a change in price is a change in the quantity
demanded. All other factors are being held constant. A
movement along a demand curve can only be caused by a
change in that commodity’s price. All other variables, such as
income, price of related commodities, tastes and preferences,
and consumer expectations are held constant for a movement
along a given demand curve. (Recall that this is similar for the
supply curve.)
5. Handout 2 Lesson-II: Demand shifters. Give the students time
to read through the handout. Tell them not to work through the
exercises yet. Work through the handout with students explicitly
discussing each major factor that may shift the demand curve.
a. Changes in income, shift in demand: When income changes, the
demand curve will also change or shift. An increase in income
will increase the demand for a good and shift the demand curve
right. A decrease in income will cause a decrease in the demand
for a good and shift the demand curve left. Have students work
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Consumer choice and demand
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Higher price, less consumption
through section 1 of 2 Lesson-II: Demand shifters. The lesson
begins with the movie from the previous lesson but increases
income to $60.
b. Discuss with students that when income changes, the demand
curve will also change. Demand will almost always increase
when income increases. Consumers will purchase more
goods at a given price when income rises. NVisual-5: Movie
schedule, income = $60 shows the new demand curve.
c. The price of related commodities, section 2 of the handout
discusses the relationship of demand for the desired good and
related goods. In the real world there are many goods and
services available for consumers. Discuss the idea of related
goods with students.
i. Complements: If you are given a carton of milk and you
especially enjoy donuts with milk, then you may be
willing to pay more for a donut to eat with your milk.
Donuts and milk would be considered complementary
goods. A decrease in the price of milk (or a free carton)
generally shifts your demand for donuts to the right so
that you will buy more donuts at each given price. Other
complementary goods may be skis and poles, coffee and
cream, pancakes and syrup.
ii. Substitutes: A substitute is a good that can easily replace
another good. For example, if the price of a desired good
rises, say the price of Coca Cola, then consumption may
shift to a substitute good, perhaps Pepsi. This would cause
the demand curve for Pepsi to shift to the right.
iii. Recall the donuts sold in class to students. If there also
exists a muffin shop in the school lobby, Molly’s Muffins,
the amount of donuts students are willing to purchase
in class may change, depending on the price of muffins.
In this case, muffins are the commodity related to class
donuts. Muffins are a substitute. Other substitutes may be
Gala and Macintosh apples, skis and snow boards, and
coffee and tea.
d. Other variables that may affect the demand for a commodity
include the number of consumers, taste and preferences, and
expectations. If the number of students in the class (consumers)
increased, it is likely that the number of donuts willingly purchased
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Teacher
at reasonable prices will increase. If new information suggests
that donut consumption contributes more to weight gain, then the
preference for donuts may change and less be consumed at each
price. Often economists also include a change in expectations
as an influence on demand. If it is suddenly announced that
donuts will be given away at lunch, then expectations have
changed and thereby the demand for class donuts will likely
change. Remember a change in any of these variables will shift
the demand curve. All of these variables are held constant for a
movement along a given demand curve. A movement along the
demand curve is in response to a change in price.
6. Difference between a change in quantity demanded and shift in
demand: The variable that results in a change in quantity demanded
(a movement along the curve) is a change in the price of that
commodity, whereas the variables that change the demand (a shift of
the curve) are a change in the price of related commodities, income,
number of consumers, tastes and preferences, and expectations.
Display NVisual-6: Change versus quantity changed. Notice
that the graphed demand curve includes price and quantity but
none of the other variables. Therefore, a movement along the
demand curve, as shown by a movement from point A to point B,
is caused by a change in price and called a change in the quantity
demanded. A price change in donuts does not change the demand
curve for donuts but does cause a movement along the demand
curve or a change in the quantity demanded. In contrast, the
increase in income causes a shift in the demand curve as illustrated
in NVisual-7: Change in demand. In fact a change in the price
of related commodities, tastes and preferences, consumers, and
expectations also can shift the demand curve. Remember, an
increase in the demand is a shift to the right. A decrease in demand
is a shift to the left.
CLOSURE
Lesson review
1. LQuestion: What information does the demand curve provide?
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Consumer choice and demand
Higher price, less consumption
Module-8
Teacher
Answer: The demand curve relays consumer information about
the quantity they are willing to consume at different prices.
2. LQuestion: Why is the demand curve downward sloping?
Answer: The law of demand states that when the price of a
commodity rises, and nothing else changes, the quantity consumed
declines, hence a downward sloping demand curve. This is true
for a number of reasons. First, income is limited. Given income is
fixed, when the price of one commodity rises, not enough money
is available to maintain consumption of the same basket of goods.
Also, substitutes are available. When the price of one item rises, it
becomes relatively more expensive than other goods.
3. LQuestion: What is the difference between a change in quantity
demanded and a shift in demand?
Answer: A change in quantity demanded is a movement along the
demand curve due to a change in price. A change in other factors
(e.g., number of consumers, income, preferences, or a change in
the price of related goods) will shift the demand curve. This is called
a change or shift in demand.
ASSESSMENT
Multiple-choice questions
1. LQuestion: The demand curve shows:
a. How consumers adjust the quantity of a product they are willing
to buy in response to a change of income.
b. A negative relationship between price and quantity.
c. How much of a commodity consumers will buy given a limited
income.
d. Both b and c but not a.
2. LQuestion: An increase in demand (a shift to the right) may be the
result of:
a. A change in the price of the commodity desired.
b. An increase in consumer income.
c. A decrease in consumer income.
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Teacher
d. A decrease in the number of consumers in the market.
3. LQuestion: A change in quantity demanded shows:
a. A shift in the demand curve.
b. The change in the number of consumers in a marketplace.
c. A movement along the demand curve in response to a change
in price.
d. A price change in response to an increase in demand.
4. LQuestion: The law of demand states:
a. When the price of a commodity rises and nothing else changes,
the quantity consumed declines.
b. When the price of a commodity rises and nothing else changes,
the quantity consumed increases.
c. When the quantity demanded of a good increases and nothing
else changes, the price will fall.
d. When consumers demand more of a good and nothing else
changes, producers will provide more.
5. LQuestion: Which of the following will cause a rightward shift in
the demand curve?
a. An increase in the price of a complementary good.
b. A decrease in the price of a substitute good.
c. A decrease in the price of a complementary good.
d. A fall in consumer income.
Answers:
1. d
2. b
3. c
4. a
5. c
Discussion/Essay Questions
1. LQuestion: At a price of $2.50 per gallon, Sally buys 1 gallon of milk
a week. If the price of milk increases to $3.50 per gallon, and nothing
else changes, will Sally buy more or less milk each week? Why?
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Module-8
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Answer: Sally will buy less milk each week. Given an income
constraint, Sally must purchase less milk if she has not changed other
consumption habits.
2. LQuestion: Why is the demand curve downward sloping?
Answer: The law of demand states that when the price of a
commodity rises, and nothing else changes, the quantity consumed
declines, hence a downward sloping demand curve. This is true
for a number of reasons. First, income is limited. Given income is
fixed, when the price of one commodity rises, not enough money
is available to maintain consumption of the same basket of goods.
Also, substitutes are available. When the price of one item rises, it
becomes relatively more expensive than other goods.
3. LQuestion: Give two examples of a change in demand.
Answer: Remember, a change in demand is shown as a shift in
the demand curve. Factors that change the demand curve include a
change in the number of consumers, change in consumer income,
change in preferences, or a change in the price of related goods.
NOTES
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NOTES
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O ve r h e a d
visuals
Consumer choice and demand
Consumer choice and demand
Module-8
Visual
Higher price, less consumption
Visual-1: Demand Defined
... more will be consumed
Law of demand tells us there is an inverse
relationship between the price of a commodity and
the quantity that will be consumed, if every thing
else remains the same.
... less will be consumed
N246
Consumer choice and demand
Module-8
Visual
Higher price, less consumption
Visual-2: Donut Demand
N247
Consumer choice and demand
Module-8
Visual
Higher price, less consumption
Visual-3: cd Demand: the price of the purchased commodity
N248
Consumer choice and demand
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Visual
Higher price, less consumption
Visual-4: movie schedule, income = $30.00
N249
Consumer choice and demand
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Visual
Visual-5: movie schedule, income = $60.00
N250
Higher price, less consumption
Consumer choice and demand
Higher price, less consumption
Module-8
Visual
Visual-6: Change vs. Quantity Changed
b
a
demand
N251
Consumer choice and demand
Higher price, less consumption
Module-8
Visual
Visual-7: Change vs. Quantity Changed
A shift of the demand curve (increase to
right, decrease to left) in response to a
change in the price of related commodities,
tastes and preferences, consumers income, and
expectations.
D2
D3
N252
demand
Module-8
L e sso n
wor ksh e e ts
consumer choice and demand
Consumer choice and demand
Higher price, less consumption
Module-8
Lesson
Lesson–I: Demand and Price
Consumer choice and demand: Higher price, less consumption
Price
per CD
$1.00
$5.00
$10.00
$15.00
Demand for CDs
$20
Price per CD
Quantity
of CDs Consumed
per month
15
10
5
1
$15
$10
$5
$0
0
5
10
15
Quantity of CDs
An important
issue in economics is how much of
a commodity (or service) will be purchased.
The quantity consumers purchase
depends on a variety of variables.
Some of the most important factors
are: The price of the commodity, consumer
income, and the price of related commodities.
The price of the purchased commodity
demand relates the quantity purchased of
a particular commodity to the price of that
commodity. The price of that commodity
represents the opportunity cost, the amount
254 2
of other commodities that must be given up
to consume the desired good. The demand
schedule above for CDs shows the relationship between price and quantity.
Plot the points of the demand schedule
on the graph above right.
The law of demand states that there is an
inverse relationship between the quantity
demanded and the price of that commodity. That is if the price increases, less will be
purchased and if price declines more will
be purchased. The above demand schedule
shows that as the price per CD increases,
the number of CDs consumed per month
declines. Your graph should show the downward slope of the demand curve.
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Consumer choice and demand
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Module-8
Lesson
Lesson–I: Demand and Price
Consumer choice and demand: Higher price, less consumption
Demand for Movies
$30
Price per Movie
Movie Demand Schedule
Quantity
Price per
of Movies
Movie
Income =
$30
$1.00
$2.00
$3.00
$5.00
$6.00
$10.00
$15.00
$30.00
$25
$20
$15
$10
$5
$0
0
10
20
30
40
50
60
Quantity of Movies
Recall, economics is the
study of the allocation of
scarce or limited resources.
Another reason the demand
curve has a negative slope
is because all individuals
have a limited budget (at
least in the short run). This constraint may be because of your earnings, allowance, parental imposed spending limit,
or net worth.
Consider the following example. Movies
are the only commodity that exists or can be
purchased. You have an income of $30 per
month, you spend all of it on movies. Determine the quantity of movies (Q) that may be
purchased at the various prices (P) with your
given income of $30. You can only attend
as many movies as your income will allow.
To calculate the quantity of movies you can
see at various prices, divide your income by
the price of a movie: Q = 30/P. The various
movie prices are shown in figure-7
Fill in the first column for the quantity of
movies you can see at the given prices.
Plot the points of the demand schedule
on the diagram to its right.
Why is the demand curve downward
sloping?
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Consumer choice and demand
Higher price, less consumption
Module-8
Lesson
Lesson–II: Demand Shifters
Demand Shifters
A
n important component of economics is
how much of a commodity (or service) to
purchase. The quantity consumers purchase
depends on a variety of variables. Some of the
most important factors are: The price of the
commodity, consumer income, and the price
of related commodities. The previous lesson
discussed how the price of the commodity
causes a change the quantity demanded and a
movement along the demand curve. This lesson
will focus on factors that actually change or shift
demand.
Change in income, shift in demand
As shown in Lesson–I, an income constraint
influences how much will be purchased. A
change in income will also impact consumer
decisions. If a person’s income increases, they
will spend more money and purchase more
commodities.
In the single commodity movie case, if the
income is increased to $60 then your demand for
movies would increase and the demand curve
would shift to the right. Calculate the quantity
demanded on the demand schedule below given
an income of $60. Plot these points and draw
the new demand curve on your diagram using
arrows to show the direction of the shift.
Movie Demand Schedule
Quantity of
Price per
Movies
Movie
Income = $60
256 2
$30
Price per Movie
$1.00
$2.00
$3.00
$5.00
$6.00
$10.00
$15.00
$30.00
Demand for Movies
$25
$20
$15
$10
$5
D1 (Income = $30)
$0
0
10
20
30
40
Quantity of Movies
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50
60
Consumer choice and demand
Higher price, less consumption
Module-8
Lesson
Lesson–II: Demand Shifters
Change in Demand vs. Change in Quantity Demanded
Change in quantity demanded. Notice that the graphed demand curve includes price and
quantity but none of the other variables. Therefore, a movement along the demand curve caused
by a change in price is called a change in the quantity demanded. A price change in donuts does
not change (or shift) the demand curve for donuts but does cause a movement along the demand
curve or a change in the quantity demanded. A movement along a demand curve can only be
caused by a change in that commodity’s price. All other variables, such as income, price of related
commodity’s, tastes and preferences, and consumer expectations are held constant for a movement
along a given demand curve.
Change in Demand. In contrast, the increase in income causes a shift in the demand curve
as illustrated earlier. In fact a change in the price of related commodities, tastes and preferences,
consumers, and expectations also can shift the demand curve.
The price of related commodities
In a more complex economy, with multiple commodities available for purchase, another variable
becomes important: Related commodities.
Complements. If you are given a carton of milk and you especially enjoy donuts with milk,
then you may be willing to pay more for a donut to eat with your milk. Donuts and milk would
be considered complementary goods. A decrease in the price of milk (or a free carton) would
increase your demand for donuts at any given price. The demand curve for donuts would shift to
the right.
Substitutes. If Molly’s Muffins opens in the school lobby, the amount of donuts you are willing
to purchase in class may change. Molly’s Muffins provides a good substitute for the donuts. If the
price of muffins declines, then you are likely to purchase fewer donuts in class and more muffins
instead. Your demand for class donuts will have declined, shifting the demand curve to the left.
Other variables. Variables that may affect the demand for a commodity include the number
of consumers, taste and preferences, and expectations. If the number of students in the class
Copyright © 2008 by MCEE (www.econedmontana.org) Economics: The Study of Choices
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Consumer choice and demand
Higher price, less consumption
Module-8
Lesson
Lesson–II: Demand Shifters
(consumers) increased, the number of donuts willingly purchased at reasonable prices will also
likely increase. If new information suggests that donut consumption contributes more to weight gain,
then the preference for donuts may change and less be consumed at each price. Often economists
also include a change in expectations as an influence on demand. If it is suddenly announced that
donuts will be given away at lunch, then expectations will change and the demand for donuts will
also change. Each of these factors will shift the demand curve.
Review
A Change in quantity demanded is in response to a change in the price of the desired good.
This is shown as a movement along the demand curve.
A shift in demand results from a change in the price of related commodities, income, number
of consumers, tastes and preferences, or expectations. An increase in demand is a shift to the right.
A decrease in demand is a shift to the left.
Practice
Determine whether the following factors will change the quantity demanded or shift the demand
curve and draw in the appropriate change moving from point A.
Dem and forSubw ay
Sandw iches
6
Price per
Sandwich
1. Jake’s allowance has increased from $20 to $30 per month.
This will:
Change the quantity of subway sandwiches demanded.
Shift Jake’s demand for subway sandwiches.
4
.A
2
0
0
0
1
2
3
4
Quantity of Sandw iches
258 2
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5
Consumer choice and demand
Higher price, less consumption
Module-8
Lesson
Lesson–II: Demand Shifters
Price per Twinkie
2. The price of Twinkies has risen. This will:
Change the quantity of Twinkies demanded.
Shift the demand for Twinkies.
Dem and forTw inkies
6
4
.A
2
0
0
0
1
2
3
4
5
Quantity of Tw inkies
3. The price of CDs doubles. This will:
Change the quantity of CDs demanded.
Shift the demand for CDs.
Price per CD player
Dem and forCD players
5
4
3
2
1
0
0
.A
0
1
2
3
4
5
Quantity of CD players
4. It is expected that the price of iPods will decline at the
end of the month. The affect on the demand for iPods
today will be:
A change in the quantity of iPods demanded.
A shift in the demand for iPods.
Price per iPod
Dem and for iPods
5
4
3
2
1
0
0
.A
0
1
2
3
4
5
Quantity of iPods
5. The price of whipping cream has increased. This will:
Change the quantity of waffles demanded.
Shift the demand for waffles.
Price per Waffle
Dem and for Waffles
5
4
3
2
1
0
0
.A
0
1
2
3
4
5
Quantity of Waffles
Copyright © 2008 by MCEE (www.econedmontana.org) Economics: The Study of Choices
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Consumer choice and demand
Higher price, less consumption
Module-8
Answer
Lesson Assessment
Multiple-choice questions
1. LQuestion: The demand curve shows:
a. How consumers adjust the quantity of a product they are willing to buy in response to a
change of income.
b. A negative relationship between price and quantity.
c. How much of a commodity consumers will buy given a limited income.
d. Both b and c but not a.
2. LQuestion: An increase in demand (a shift to the right) may be the result of:
a. A change in the price of the commodity desired.
b. An increase in consumer income.
c. A decrease in consumer income.
d. A decrease in the number of consumers in the market.
3. LQuestion: A change in quantity demanded shows:
a. A shift in the demand curve.
b. The change in the number of consumers in a marketplace.
c. A movement along the demand curve in response to a change in price.
d. A price change in response to an increase in demand.
4. LQuestion: The law of demand states:
a. When the price of a commodity rises and nothing else changes, the quantity consumed
declines.
b. When the price of a commodity rises and nothing else changes, the quantity consumed
increases.
c. When the quantity demanded of a good increases and nothing else changes, the price will
fall.
d. When consumers demand more of a good and nothing else changes, producers will provide
more.
5. LQuestion: Which of the following will cause a rightward shift in the demand curve?
a. An increase in the price of a complementary good.
b. A decrease in the price of a substitute good.
c. A decrease in the price of a complementary good.
d. A fall in consumer income.
260 2
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Consumer choice and demand
Higher price, less consumption
Module-8
Answer
Lesson assessment
Discussion/essay questions
1. LQuestion: At a price of $2.50 per gallon, Sally buys 1 gallon of milk a week. If the price of milk
increases to $3.50 per gallon, and nothing else changes, will Sally buy more or less milk each
week? Why?
2. LQuestion: Why is the demand curve downward sloping?
3. LQuestion: Give two examples of a change in demand.
Copyright © 2008 by MCEE (www.econedmontana.org) Economics: The Study of Choices
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Consumer choice and demand
Higher price, less consumption
Module-8
Teacher
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