Download demand S. 2

Chapter 4 Objectives
Section 2: Factors Affecting Demand
•Explain what causes a change in ___________ demanded.
•Describe the ___________ that could cause a change in _____________.
Introduction
•The demand __________ is a graphical representation of the quantities that people are willing to
purchase at all possible prices that might prevail in the market.
•Occasionally something happens to change people’s willingness and __________ to buy.
•These changes are usually of ______ types: a change in the quantity demanded, and a change in
demand.
Change in Quantity Demanded
•A change in quantity demanded is _____________
along the demand curve that shows a change in the
quantity of the product purchased in response to a
change in price.
•Like the principle of diminishing ____________ utility,
the income and _____________ effects can add to our
understanding of demand.
A Change in
Quantity
Demanded
The Income Effect
 When prices ________, consumers pay less for the product and, as a result, have some extra real
income to spend.
•The increase in spending is due to consumers feeling richer.
•If the price goes up, the _____________ would happen and consumers would feel poorer.
•This illustrates the ___________ effect, the change in quantity demanded because of a change in
price that alters consumers’ real income.
The Substitution Effect
•A __________ price also means that the product would be relatively less expensive than other
similar goods and services.
•As a result, consumers will have a tendency to replace a more ________ item with a less costly one.
•The ________________ effect is the change in quantity demanded because of the change in the
relative price of the product.
•Note that whenever a change in price causes a change in quantity demanded, the change appears
graphically as a movement __________ the demand curve.
•The change in quantity demanded can be either an ___________ or a decrease–but in either case
the demand curve itself does not _________.
Change in Demand
•Sometimes something happens to cause the demand curve itself to shift.
•This is known as a change in ___________ because people are now willing to buy __________
amounts of the product at the same prices.
•As a result, the entire demand curve ___________–to the right to show an increase in demand or to
the left to show a decrease in demand for the product.
•Therefore, a change in demand results in an entirely new ___________.
•When the demand curve changes, a new ______________ or __________ must be constructed to
reflect the new demand at all possible prices.
Ch. 4 S. 2
•Individual demand, and therefore market demand, is affected by four principal factors.
•A fifth factor affects only the market demand curve.
A Change in
Demand
Consumer Income
•Change in consumer ____________ can cause a change in demand.
•When your income goes up, you can ___________ to buy more goods and services.
•As incomes rise, consumers are able to buy more products at each and every price.
•When this happens, the demand curve shifts to the __________.
•Exactly the ____________ could happen if there was a ______________ in income.
•The demand curve then shifts to the _________, showing a decrease in demand.
Consumer Tastes
•________________ do not always want the same things.
•Advertising, news reports, fashion trends, the introduction of new products, and even changes in the
season can affect consumer ____________.
•If consumers want more of an _______, they would buy more of it at each and every price.
•As a result, the demand curve shifts to the right.
 If people get _________ of a product, they will buy ________ at each and every price, causing the
demand curve to shift to the left.
•The _______________ of new products can also have an effect on consumer tastes.
Substitutes
•A change in the _________ of related products can cause a change in demand.
•Some products are known as _____________ because they can be used in place of other products.
•In general, the demand for a product tends to increase if the price of its substitute goes up.
•The demand for a ____________ tends to decrease if the price of its substitute goes down.
Complements
•Other related goods are known as ________________, because the use of one increases the use of
the other.
•Personal computers and software are two complementary goods.
•When the price of ______________ decreases, consumers buy more computers and more software.
•If the price of computers rises, consumers would buy fewer computers and less _____________.
Ch. 4 S. 2
Change in Expectations
•“_______________” refers to the way people think about the future.
•For example, suppose that a leading __________ of audio products announces a technological
breakthrough that would allow more music to be recorded on a smaller disk at a lower cost than
before.
•Even if the new product might not be ______________ for another year, some consumers might
decide to buy fewer music CDs today simply because they want to wait for a better product.
•Purchasing less at each and every price would cause demand to decline, which is ______________
by a shift of the demand curve to the left.
•If future shortages of a product are ___________, this might cause demand to increase, which is
demonstrated by a ________ of the demand curve to the right.
Number of Consumers
•A change in income, tastes, and prices of related products affects ______________ demand
schedules and curves.
•This in turn affects the ___________ demand curve, which is the sum of all individual demand
curves.
•An increase or decrease in the number of ________________ can cause the market demand curve
to shift.