The Demand Curve Shifts

Price goes up quantity demand decreases, but… when price goes down quantity demanded increases when price goes down quantity demanded increases LAW OF DEMAND

Several factors will cause the quantity demanded at every price to change Quantity Price Demanded $4 1 $3 2 $2 3 $ Price Quantity Demanded Can you come up with the 5 factors economists have identified that would cause this increase in quantity demanded at every price?

What Causes the Demand Curve to Shift? Five factors cause the demand curve to shift TINER! Changes in tastes or preferences Change in income Change in the number of buyers in the market Change in expectations of future price Change in the price of related goods EOC Study Guide Supply & Demand #3

1. Tastes or Preferences 1. Tastes or Preferences

Demand Curve Shifts Description: A change in preferences in favor of a good shifts the demand curve to the right. A change in preferences away from a good shifts the demand curve to the left

2. Income Description: As income changes, people may buy more or less of a particular good—BUT it depends on the type of good it is As it turns out, those were the droids you were looking for.

Change in Income Change in Income Cont. Suppose you got fired—what will happen to your consumption of these? Normal goods are goods for which the demand rises as income rises and falls as income falls

Change in Income Change in Income Cont. Suppose you got fired—what will happen to your consumption of these? Inferior goods are goods for which the demand falls as income rises and rises as income falls

Change in Income Change in Income Cont. Suppose you got fired—what will happen to your consumption of these? Neutral goods are goods for which the demand remains unchanged as income rises or falls

3. Number of Buyers in the market The demand for a good in a particular market area is related to the number of buyers in the area Description: The more buyers, the higher the demand The fewer buyers, the lower the demand

4. Expectations of Future Price

Description: B uyers who expect the price of a good to be higher in the future may buy the good NOW, thus increasing the current demand B uyers who expect the price of a good to be lower in the future may WAIT until the future to buy the good, thus decreasing the current demand for the good

5. 5. Prices of Related Goods Demand for goods is affected by the prices of related goods Substitutes are similar goods. With substitutes, the price of one and the demand for the other move in the same direction P of Donuts demand for Danishes P of apples demand for oranges

5. 5. Prices of Related Goods Demand for goods is affected by the prices of related goods Complements are goods that are consumed jointly with another good. With complements, the price of one and the demand for the other move in opposite directions P of peanut butter demand for jelly P of hot dogs demand for hot dog buns