Download Shifts in the Demand Curve

The
Demand
Curve
The Economics of
Demand
The Demand Curve
Changes in Demand
Consider
Why are newspapers sold in vending machines that allow
you to take more than one copy?
How much do you eat when you can eat all you want?
What economic principle is behind the saying, “Been there,
done that”?
Why do higher cigarette taxes cut smoking by teens more
than by other age groups?
Demand
• Demand indicates how much of a
product consumers are both willing and
able to buy at each possible price during
a given period, other things remaining
constant.
Law of Demand
• The law of demand says that quantity demanded
varies inversely with price, other things constant.
Thus, the higher the price, the smaller the quantity
demanded.
THINGS THAT EFFECT
DEMAND
• Substitution effect
– The change in quantity demanded resulting
from a change in the price of one good relative to
the price of other goods
• Income effect
– The change in quantity demanded resulting from a
change in the consumer’s purchasing power (or real
income)
• Real income – measure in terms of how many goods
and services you can buy
Example
• Say that you divide your $10 daily income
between apple fritters at today’s prices of $1 each
and chocolate bagels at $2 each.
– CHART
Money Price
Today
F
R
I
T
T
E
R
B
A
G
E
L
$1
$2
Relative Price
Tomorrow Today
$2
$2
½ Bagel
2 Fritters
Tomorrow
1 Bagel
1 Fritter
Share of Income
Today Tomorrow
1/10
1/5
1/5
1/5
Demand Schedule
and Demand Curve
• Demand versus quantity demanded
– Qualitative vs Quantitative
• Individual demand
– Per Individual (What is your demand for a product?)
• Market demand
– All Individual Demands added up
Demand Schedule
Price
Quantity Demanded
per Pizza per Week (millions)
a
b
c
d
e
$15
12
9
6
3
8
14
20
26
32
Demand Curve for Pizza
Price per pizza (P)
P
$15
12
a
b
c
9
REMEMBER
TO MIND YOUR P’s and Q’s
6
3
0
d
e
D
Q
8 14 20 26 32
Millions of pizzas per week (Qd)
Individual Demand for Pizzas
P
(a) Hector
(b) Brianna
Price
$12
8
4
dH
1 2 3
(c) Chris
P
P
$12
$12
8
4
8
4
Q
1 2
Pizzas
(per week)
dB
Q
dC
1
Q
Market Demand for Pizzas
(d) Market demand for pizzas
P
dH + dB + dC = D
Price
$12
8
4
Q
1 2 3
6
Pizzas
(per week)
Ceteris Paribus
• Ceteris paribus is a Latin phrase economists use
meaning “all other things held constant.”
– A demand curve is accurate only as long as the ceteris
paribus assumption is true.
– When the ceteris paribus assumption is dropped,
movement no longer occurs along the demand curve.
Rather, the entire demand curve shifts.
Demand Curve
How do you think you would show (using the Demand Curve)
an increase in the Demand for a good?
P
D
0
Q
The Demand Curve
P
P2
Movement along the Demand
Curve means that the Price has
changed…
B
P1
A
D
0
Qd
Qd
Q
…HOWEVER
WHAT HAS
NOT THAT DEMAND
CHANGED
FROM POINT
HAS INCREASED
OR
“A”DECREASED!!!!!
TO “B”?
QUANTITY DEMANDED!
The Demand Curve
P
If it shifts to the Right what
has happened?
Demand has Increased
D1
0
D2
Q
The Demand Curve
P
What does a shift to the left mean?
Demand has Decreased…
“LEFT IS LESS”
D1
D2
0
Q
Shifts in Demand
• BUT…what are some things that would cause the
demand curve to shift?
–
–
–
–
–
Income Level
Consumer Expectations
Number of Buyers
Consumer Tastes
Prices of Related Goods
Determinants of Demand
• 1. Income
– Changes in consumers incomes affect demand.
• A normal good is a good that consumers demand more of
when their incomes increase.
• An inferior good is a good that consumers demand less of
when their income increases.
Determinants of Demand
• 2. Consumer Expectations
– Whether or not we expect a good to increase or
decrease in price in the future greatly affects our
demand for that good today.
• Example: Anticipation of Sales
Determinants of Demand
• 3. Number of Buyers
– Changes in the size of the population also affects the
demand for most products.
• Example: Demand for houses would decrease if the
population decreased
Determinants of Demand
• 4. Consumer Tastes
– Tastes are highly individualized
• Advertising plays an important role in many trends and
therefore influences demand.
Determinants of Demand
• 5. Prices of Related Goods
– Substitutes: are goods used in place of one another.
• Example: skis and snowboards
– Complements: are two goods that are bought and used
together.
• Example: skis and ski boots
Closure
• Examples:
P
P
D
D
0
Q
0
Q