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Shifts in Demand Unit 2 Demand Review What is demand? What is the Law of Demand? What makes demand have a downward slope? Demand Curve Inverse relationship between price and quantity demanded Price P Qd D Quantity P Qd Change in Quantity Demanded Changes in price cause a change in quantity demanded Illustrated by moving from one point to another on the demand curve Changes in Demand INCREASE in Demand: people are willing and able to buy MORE of a good AT EVERY PRICE LEVEL DECREASE in Demand: People are willing and able to buy LESS of a good AT EVERY PRICE LEVEL Illustrated by shifting the entire demand curve Increase in Demand INCREASE in demand shifts in the demand curve to the RIGHT Price D2 D1 Quantity Decrease in Demand DECREASE in demand shifts in the demand curve to the LEFT Price D1 D2 Quantity Why Demand Shifts: Determinants of Demand Income Weather Tastes and Preferences Number of Buyers Substitute Goods Expectations Complementary Goods Income: Inferior vs. Normal Goods Inferior Goods Demand decreases when income increases Demand increases when income decreases Normal Goods Demand increases when income increases Demand decreases when income decreases Tastes and Preferences Demand increases and decreases with changes in tastes/preferences Fads causes changes in demand Advertising influences consumers’ tastes Price of Substitute Goods If price of one good increases, the quantity demanded decreases. DEMAND for its SUBSTITUTE INCREASES If price of a good decreases, the quantity demanded increases DEMAND for its SUBSTITUTE DECREASES Price of Substitute Goods Price of of a Good Increases Quantity Demanded Decreases DEMAND for Substitute Good Increases Price of of a Good Decreases Quantity Demanded Increases DEMAND for Substitute Good Decreases Price of Complementary Goods If price of one good increases, the quantity demanded decreases. DEMAND for its COMPLEMENT also DECREASES If price of a good decreases, the quantity demanded increases DEMAND for its COMPLEMENT also INCREASES Price of Complementary Goods Price of of a Good Increases Quantity Demanded Decreases DEMAND for Complementary Good Decreases Price of of a Good Decreases Quantity Demanded Increases DEMAND for Complementary Good Increases Number of Buyers INCREASE of # of buyers INCREASES demand DECREASE of # of buyers DECREASES demand Expectations Expectations for future income Demand increases with expected increase in income Demand decreases with expected decrease in income Expectations Expectations for future prices If you expect prices to increase in the future, demand will increase now If you expect prices to decrease in the future, demand decreases now Expectations Expectations for what product will do for you If product will be good for you, demand increases If product will be bad for you, demand decreases
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