Download Change in Demand

Changes in
Demand- “Shifts”
Warm up:
Describe the Law of Demand,
include the substitution effect
and income effect in the
description.
Changes in Demand
 Demand Shifts: Time allows factors
other than price to influence demand
significantly.
 In Economics these factors can shift
the entire demand curve of a product
to the right or to the left.
Changes in Demand

Determinants of Demand—Factors that
can cause the entire demand curve to shift to
either the right or left.
1. Consumer tastes and preferences
2. Market size
3. Income
4. Prices of related goods
5. Consumer expectations
Determinants of Demand
1. Consumer Tastes and Preferences:


ex. Changes in music preferences
If a groups popularity rises—demand curve
shifts to the right
If a groups popularity declines—demand
curve shifts to the left.
Determinants of Demand
2. Market Size—The size of a market
tend to affect demand.



Markets expand and contract
Nike launches new advertising campaign
for its SHOX running shoes.
If successful, curve shifts to right
Determinants of Demand
 Government Policy can affect size of
markets—China trade policy example
 New Technology can affect market size
 Ex. Invention of video and internet cell
phones
 Old cell phone technology—demand
curve shifts to the left.
 New video technology—demand curve
shifts to the right.
Determinants of Demand
3. Income—Higher incomes generally
allows people to spend more money for
goods and services which causes the
demand curve to shift to the right.
Determinants of Demand
4. Prices of Related Goods—A change
in a products price can affect demand
for the products related goods.


Ex. Butter/Margarine—Margarine is
substituted for butter when price of butter
goes up.
Complementary Goods—Goods that are
commonly used with other goods.


Ex. Paint / Paintbrushes
Price of paint increases—demand for paint and
paintbrushes decreases
Determinants of Demand
5. Consumer Expectations—Your
expectations for more future
income influences your purchases
today.
 Ex. Anticipate a raise in your
salary OR
 If you anticipate being laid off !
Demand Shifts-Examples
Tell the determinant and show
what will happen—shift right or
left?
Price
 Price of
Artificial
Sweetener
Increases—
what
happens to
sugar
demand?
Quantity
Demand Shifts-Examples
Tell the determinant and show what
will happen—shift right or left?
 1950’s
Musicals
become “the
rage” among
15-20 year
olds. Show
what might
happen to DVD
Sales in this
category.
Price
Quantity
Demand Shifts-Examples
Tell the determinant and show what
will happen—shift right or left?
Price
 The
government
does a
retroactive
tax cut
accompanied
by a $1500
rebate check
for everyone
over 18.
What
happens to
demand for
movie
tickets?
Quantity
Demand Shifts-Examples
Tell the determinant and show what
will happen—shift right or left?
 Detroit—a
rumor spreads
that GM is
insolvent
(doesn’t have
sufficient
money) and will
have to close
down 80% of its
plants. What
happens to
demand for
work shoes?
Price
Quantity
Demand Shifts-Examples
Tell the determinant and show what
will happen—shift right or left?
 The price of
motor oil for
automobiles
becomes
10x more
expensive.
What
happens to
demand for
gasoline?
Price
Quantity