W HAT ARE THE FACTORS WHICH CAN CAUSE A CHANGE IN D EMAND ? Aim: To understand the factors which influence demand.
T HE D EMAND S CHEDULE Demand schedule : A table that shows the relationship between the price of a good and the quantity demanded. Example: Helens demand for lattes. Price of lattes Quantity of lattes demanded $0.0016 1.0014 2.0012 3.0010 4.008 5.006 6.004 Notice that Helens preferences obey the Law of Demand.
Price of Lattes Quantit y of Lattes H ELEN S D EMAND S CHEDULE & C URVE Price of lattes Quantity of lattes demanded $0.0016 1.0014 2.0012 3.0010 4.008 5.006 6.004
M ARKET D EMAND VERSUS I NDIVIDUAL D EMAND The quantity demanded in the market is the sum of the quantities demanded by all buyers at each price. Suppose Helen and Ken are the only two buyers in the Latte market. ( Q d = quantity demanded) 4 6 8 10 12 14 16 Helens Q d 2 3 4 5 6 7 8 Kens Q d + + + + = = = = 6 9 12 15 +=18 +=21 +=24 Market Q d $0.00 6.00 5.00 4.00 3.00 2.00 1.00 Price
P Q T HE M ARKET D EMAND C URVE FOR L ATTES P Q d (Market) $0.0024 1.0021 2.0018 3.0015 4.0012 5.009 6.006
D EMAND C URVE S HIFTERS The demand curve shows how price affects quantity demanded, other things being equal. These other things are non-price determinants of demand ( i.e., things that determine buyers demand for a good, other than the goods price). Changes in them shift the D curve…
C ONDITIONS WHICH CAN CHANGE THE DEMAND - A SHIFT IN THE CURVE. A consumers Income May effect different types of goods in different ways 1. Normal 2. Inferior Consumer preferences or tastes Prices of related goods- there are two types of related good 1. Compliments 2. Substitutes Numbers of buyer in a market
I NCOME In most cases an increase in the a consumers income will result in an increase in demand for a commodity. Even though price has not changed, demand conditions have changed, consumers are able to spend more and purchase more at each price. 1. List all the ways you can think of which could increase consumer income?
I NCOME CAN INCREASE BECAUSE …… Increase in wages, salaries Increase in profits, which increase dividends and returns to shareholders Increase in interest earned on money in the bank Increase in such things as benefits, pensions, or an inheritance. Decrease in income tax
D EMAND C URVE S HIFTERS : INCOME Demand for a normal good is positively related to income. An increase in income causes increase in the amount demanded at each price, shifting the D curve to the right. (Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.) Create two pictures to show a definition for the two different types of goods.
C OMPLETE ACTIVITIES IN FULL, ADD AS MUCH DETAIL TO ANSWERS AS YOU CAN. Page 15 for more info 1. Suggest three detailed reasons for an increase in household incomes 2. How would a decrease in income affect the demand for most goods? 3. Distinguish between normal and inferior goods, give examples for each 4. Explain how an increase in income tax will affect the demand for: 1. Normal goods 2. Inferior goods 5. Suggest what types of firm would do well in a recession where normal income decreases. (use economic theory to back up your ideas)
D EMAND C URVE S HIFTERS : # OF BUYERS An increase in the number of buyers causes an increase in quantity demanded at each price, which shifts the demand curve to the right. CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND
P Q Suppose the number of buyers increases. Then, at each price, quantity demanded will increase (by 5 in this example). Demand Curve Shifters: # of buyers
D EMAND C URVE S HIFTERS : PRICES OF RELATED GOODS Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right. Other examples: Coke and Pepsi, laptops and desktop computers, compact discs and music downloads
D EMAND C URVE S HIFTERS : PRICES OF RELATED GOODS Two goods are complements if an increase in the price of one causes a fall in demand for the other. Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left. Other examples: college tuition and textbooks, bagels and cream cheese, eggs and bacon
D EMAND C URVE S HIFTERS : TASTES Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right. Example: The Atkins diet became popular in the 90s, caused an increase in demand for eggs, shifted the egg demand curve to the right. CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND
D EMAND C URVE S HIFTERS : EXPECTATIONS Expectations affect consumers buying decisions. Examples: If people expect their incomes to rise, their demand for meals at expensive restaurants may increase now. If the economy turns bad and people worry about their future job security, demand for new autos may fall now. CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND
S UMMARY : V ARIABLES T HAT A FFECT D EMAND VariableA change in this variable… CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND Price…causes a movement along the D curve No. of buyers…shifts the D curve Income…shifts the D curve Price of related goods…shifts the D curve Tastes…shifts the D curve Expectations…shifts the D curve
A C T I V E L E A R N I N G 1 : Demand curve A. The price of iPods falls B. The price of music downloads falls C. The price of compact discs falls 20 Draw a demand curve for music downloads. What happens to it in each of the following scenarios? Why?
A C T I V E L E A R N I N G 1 : A. price of iPods falls 21 Q2Q2 Price of music down- loads Quantity of music downloads D1D1 D2D2 P1P1 Q1Q1 Music downloads and iPods are complements. A fall in price of iPods shifts the demand curve for music downloads to the right. Music downloads and iPods are complements. A fall in price of iPods shifts the demand curve for music downloads to the right.
A C T I V E L E A R N I N G 1 : B. price of music downloads falls 22 The D curve does not shift. Move down along curve to a point with lower P, higher Q. The D curve does not shift. Move down along curve to a point with lower P, higher Q. Price of music down- loads Quantity of music downloads D1D1 P1P1 Q1Q1 Q2Q2 P2P2
A C T I V E L E A R N I N G 1 : C. price of CDs falls 23 P1P1 Q1Q1 CDs and music downloads are substitutes. A fall in price of CDs shifts demand for music downloads to the left. CDs and music downloads are substitutes. A fall in price of CDs shifts demand for music downloads to the left. Price of music down- loads Quantity of music downloads D1D1 D2D2 Q2Q2