2. Changes in Demand

3. Determinants of Demand: The Factors that determine how much of something will be purchased at any given price. –Consumer Income, Consumer Expectations (attitudes), Number of Consumers (population), Consumer Tastes, Substitutes and Complements Change in Demand: People are willing to buy different amounts of a product at the same prices

4. Change in Demand A change in demand results in an entirely new demand schedule and demand curve! (Because new quantities are demanded at each and every price) A change in price does not cause the demand curve to shift

5. 6 5 4 3 2 1 0 Quantity Demanded (slices per month) Price (per slice of pizza) PQdQd $5 4 3 2 1 2 4 7 11 16 P Q D1D1 2 4 6 8 10 12 14 16 18 Demand Can Increase or Decrease Increase in Demand Decrease in Demand D2D2D2D2 D3D3D3D3 “Change in Demand (curve)” Demand Schedule Individual Demand Demand is a whole bunch of QDs strung together.

6. Consumer Income Rise or fall of a Consumer’s Income will have an effect on the demand of a product –Example: John makes $1,500 a month, he just received a raise and now he makes $4,000 a month.

7. D1 D1 D1 D1 D2 D2 D2 D2 P QD 1 QD 2 More income results in more demand for steak; less demand for spam. Spam Less income results in more demand for spam; less demand for steak. Steak I n May of 2008, Hormel reported an increase of 10.6% in Spam sales.

8. Consumer Income Normal Goods-Goods that consumers demand more of when incomes increase –Examples: Steak, New clothing, new cars, new electronics, Kellogg's Frosted Flakes, Coca-Cola Inferior Goods-Goods that consumers demand less of when incomes increase –Examples: Spam, old clothes, used cars, Generic Cereal, Shasta

9. Normal Good Normal Good – goods whose demand directly varies directly with income. Inferior Good Inferior Good – g oods whose demand inversely varies inversely with income. Income Demand For Inferior Goods Demand For Normal Goods Consumer Income

11. D1 D1 D1 D1 D2 D2 D2 D2 $299 QD 1 QD 2 iPod-Touch If the iPod-Touch is expected expected to increase in price from $299 to $399.iPod-Touch Expectations about the future concerning future price, availability, and Income.

12. D1 D1 D1 D1 D2 D2 D2 D2 P QD 1 QD 2 coming out of recession Let’s say that we are coming out of recession & consumers Positive future income feel secure about their jobs. [ Positive future income ]

13. D1 D1 D1 D1 D2D2D2D2 P QD 1 QD 2 going into a recession Let’s say that we are going into a recession and consumers Negative future income don’t feel secure about their jobs. [ Negative future income]

15. More consumers, more demand for products –Example: Mid 1940s-1964 a “Baby Boom” occurred. Demand for Baby products rose significantly. –Baby Boomers are now retiring, what will happen to products demanded by senior citizens? Will they go up or down?

16. D1 D1 D1 D1 D2 D2 D2 D2 P QD 1 QD 2 More demand for goods

18. Change in Consumer Taste Influenced by media or advertisement –Example: Mad Cow Disease; People stop eating beef because they were afraid of contracting Mad Cow Disease.

19. P Hamburger Meat D1D1D1D1 D2D2D2D2

22. Complements are two goods that are bought and used together –Example: Cereal and Milk, Peanut Butter & Jelly Substitutes are goods used in place of one another –Example: Skis and Snowboards, Cheerios and Pop Tarts

23. Complement [ Inverse ] Substitute [ Direct ] Milk Cereal Pop Tarts D1D1D1D1 D2D2D2D2 P P1P1P1P1 QD 1 P2P2 D1D1D1D1 D2D2D2D2 D P QD 2