1. Chapter 4: Section 2 The Demand Curve Shifts When Demand Changes, the Curve Shifts Demand can change. It can go up, or it can go down. Economists show changes in demand on graphs—the demand curves that we learned about in the last lesson. When demand goes up, the demand curve shifts to the right. When demand goes down, the demand curve shifts to the left. (See Transparency 4-4.)Transparency 4-4

2. TRANSPARENCY 4-4: Shifts in a Demand Curve

3. In the graph you see here, the demand curve in the middle, the one labeled D 1, is the starting point. On this curve, what is the quantity demanded at a price of $1? (Answer: Four hundred quarts of orange juice.) Suppose that the demand for orange juice increases to 600 quarts. People still want to pay $1 per quart, but now they want to buy more at that price. What happens to the demand curve? (Answer: It shifts to the right and becomes D 2.) When demand goes up, the demand curve shifts to the right.

4. Now suppose that the demand for orange juice decreases to 200 quarts. What happens to the demand curve? (Answer: It shifts to the left and becomes D 3.) When demand goes down, the demand curve shifts to the left. Notice that in all these examples, the price stays the same. When the quantity demanded goes up, at the same price, the curve shifts to the right. When the quantity demanded goes down, at the same price, the curve shifts to the left.

5. What Factors Cause Demand Curves to Shift? Five factors cause demand curves to shift: Income. As a person’s income changes, he or she may buy more or less of a certain good. If a person’s income and demand change in the same direction, the good is a normal good. If income and demand go in opposite directions, the good is an inferior good. If demand does not change even though income does, the good is a neutral good. Preferences. Changes in preferences cause changes in demand.

6. Prices of related goods. When two goods are substitutes, the demand for one moves in the same direction as the price of the other. When two goods are complements, the demand for one moves in the opposite direction of the price of the other. Complements are goods used together. Number of buyers. A change in the number of buyers, either an increase or a decrease, can change demand. Future price. Buyers’ expectations of future prices can cause them to buy now or wait to buy. Both actions affect current demand. The only factor that affects quantity demanded is price. Remember: Demand and quantity demanded are not the same thing.