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Demand Curves
Supply and Demand is a way to show
a model of a Competitive Market
• Competitive Market is a market in which
there are many buyers and sellers of the
same good or service
• The key feature of a competitive market
is that no individual’s actions have a
noticeable effect on the price at which
the good or service is sold.
• Supply and Demand models show the behavior
of a competitive market
• The five elements of the model are:
– The demand curve
– The supply curve
– The set of factors that cause the demand curve to
shift and the set of factors that cause the supply
curve to shift
– The market equilibrium (includes the equilibrium
price and equilibrium quantity)
– The way the market equilibrium changes when the
supply curve or demand curve shifts
The Demand Curve
• The demand schedule is a table that shows
how much of a good or service consumers
will want to buy at different prices
• As price rises, quantity demanded falls – the
actual amount consumers are willing to buy
at a some specific price
The curve that connects each of the points on the
graph is called the demand curve – a graphical
representation of the demand schedule, another way
of showing the relationship between the quantity
demanded and price
The Law of Demand
• The law of demand says that a higher
price for a good or service, other things
equal, leads people to demand a smaller
quantity of that good or service
Shift of the Demand Curve
• A shift of the demand
curve is a change in
the quantity
demanded at any
given price,
representing by the
change of the original
demand curve to a
new position,
denoted by a new
demand curve.
Shifting of the Demand Curve
Movement Along the Demand Curve
• This is a change in the quantity
demanded of a good that is the result of
a change in that good’s price.
• Example:
– Fall of the price of coffee beans in 2002
(D1) from $1.50 to $1 per pound.
Movement Along the Demand Curve
Movement Along the Demand Curve
• Remember:
– “the demand for X has increased” or “the
demand for Y decreased” it means that the
demand curve for X or Y shifted
– NOT…… that the quantity demanded rose
or fell because of a change in the price!
Shifts in the Demand Curve
• Two ways a Demand Curve can shift:
1. Increase in Demand
– Means a rightward shift of the demand
curve
– At any given price, consumers demand a
larger quantity of the good or service than
before
Shifts in the Demand Curve
2. Decrease in Demand
– Means a leftward shift of the demand
curve
– At any given price, consumers demand a
small quantity of the good or service than
before
Five Factors that Shift the Demand Curve
1. Changes in consumer tastes
2. Changes in the number of buyers
3. Changes in consumer incomes
4. Changes in the price of
complementary and substitute
goods
5. Change in consumer expectations
1. Changes in Consumer Tastes
• When tastes change in favor of a good,
more people want to buy it at any given
price
– Demand curve shifts to the right
• If tastes change against a good, fewer
people want to buy it at any price
– Demand curve shifts to the left
Market Demand Curve shows the combined
quantity demanded by all consumers depends on
the market price of that good
**When it is said, demand curve, it means the
Market Demand
Curve **
Individual Demand
Curves
2. Changes in the numbers of buyers
•
– Shows the relationship between quantity
demanded and price for an individual
consumer
3. Changes in Consumer Incomes
• If a family’s income rises, they are more
likely to go on a trip to Walt Disney
World and would then have to buy
airline tickets and get a hotel room.
• So, a rise in consumer incomes will
cause the demand curves for most
goods to shift to the right.
3. Changes in Consumer Incomes
• “most goods” verse “all goods”
• Most goods are normal goods – demand for these
goods increases when consumers incomes rise.
• When demand decreases for a good, these are
referred to as inferior goods – a good that is
considered less desirable than more expensive
alternatives
• When incomes go up, people stop buying an inferior
good and switch to the preferred good.
– This shifts the demand curve to the left
– If a fall income occurs, the demand curve shifts to the
rights
4. Change in the prices of complementary
and substitute goods
• Tea is a substitute for coffee
• Cars and gasoline are complements
5. Changes in consumer expectations
• Current demand for a good is often affected by
expectations of its future price
• Ex. Seasonal sales – buying holiday gifts for
Christmas in 2011 the day after Christmas this
year in 2010.
• If you expect your income to rise, you will buy
today and increase demand for certain goods
• If you expect your income to fall, you are likely
to save and reduce your demand for certain
goods
Review Question:
• Explain whether each of the following
events represent
A. A shift of the demand curve
B. A movement along the demand curve
A. a shift of the demand curve
B. a movement along the demand curve
1. A store owner finds that customers are willing to
pay more for umbrellas on rainy days.
2. When XYZ Telecom, a long-distance telephone
service provider, offered reduced rates on
weekends, its volume of weekend calling increased
sharply.
3. People buy more long-stem roses the week of
Valentine’s Day, even though the prices are higher
than at other times during the year.
4. The sharp rise in the price of gasoline leans many
commuters to join carpools in order to reduce
their gasoline purchases.
Demand Curves Notes
Supply and Demand is a way to show
a model of a Competitive Market
• Competitive Market is a
• The key feature of a competitive market
is that no individual’s actions have a
noticeable effect on the price at which
the good or service is sold.
• Supply and Demand models show the
behavior of a competitive market
• The five elements of the model are:
– The demand curve
– The supply curve
– The set of factors that cause the demand curve
to shift and the set of factors that cause the
supply curve to shift
– The market equilibrium
– The way the market equilibrium changes when
the supply curve or demand curve shifts
The Demand Curve
• The demand schedule is a table that shows
how much of a good or service consumers
will want to buy at different prices
• As price rises, quantity demanded falls
The Law of Demand
Shift of the Demand Curve
• A shift of the demand
curve is a change in
the quantity
demanded at any
given price,
representing by the
change of the original
demand curve to a
new position,
denoted by a new
demand curve.
Shifting of the Demand Curve
Movement Along the Demand Curve
• This is a change in the quantity
demanded of a good that is the result of
a change in that good’s price.
Movement Along the Demand Curve
Movement Along the Demand Curve
• Remember:
– “the demand for X has increased” or “the
demand for Y decreased” it means that the
demand curve for X or Y shifted
– NOT…… that the quantity demanded rose
or fell because of a change in the price!
Shifts in the Demand Curve
• Two ways a Demand
Curve can shift:
1. Increase in
Demand
Shifts in the Demand Curve
2. Decrease in
Demand
Five Factors that Shift the Demand Curve
1. Changes in _________________
2. Changes in __________________
3. Changes in _________________
4. Changes in ___________________
_____________________________
5. Change in ____________________
1. Changes in Consumer Tastes
• When tastes change in favor of a good,
more people want to buy it at any given
price
• If tastes change against a good, fewer
people want to buy it at any price
2. Changes in the numbers of buyers
• Individual Demand Curves
– Shows the relationship between quantity
demanded and price for an individual
consumer
3. Changes in Consumer Incomes
• If a family’s income rises, they are more
likely to go on a trip to Walt Disney
World and would then have to buy
airline tickets and get a hotel room.
• So, a rise in consumer incomes will
cause the demand curves for most
goods to shift to the right.
3. Changes in Consumer Incomes
• “most goods” verse “all goods”
• Most goods are normal goods –
• When demand decreases for a good, these are
referred to as inferior goods –
• When incomes go up, people stop buying an inferior
good and switch to the preferred good.
4. Change in the prices of complementary
and substitute goods
• Tea is a substitute for coffee
• Cars and gasoline are complements
5. Changes in consumer expectations
• Current demand for a good is often affected by
expectations of its future price
• If you expect your income to rise, you will buy
today and increase demand for certain goods
• If you expect your income to fall, you are likely
to save and reduce your demand for certain
goods
Review Question:
• Explain whether each of the following
events represent
A. A shift of the demand curve
A. A movement along the demand curve
A. a shift of the demand curve
B. a movement along the demand curve
1. A store owner finds that customers are willing to
pay more for umbrellas on rainy days.
2. When XYZ Telecom, a long-distance telephone
service provider, offered reduced rates on
weekends, its volume of weekend calling increased
sharply.
3. People buy more long-stem roses the week of
Valentine’s Day, even though the prices are higher
than at other times during the year.
4. The sharp rise in the price of gasoline leans many
commuters to join carpools in order to reduce
their gasoline purchases.