1. Determinants of Demand
Arnold, Roger A. Economics In Our Time (Teacher's Edition). Grand Rapids: West Educational, 1999.
McEachern, William A. Contemporary Economics. Mason, Ohio: Thomson South-Western, 2005.

2. Review: Change in Quantity Demanded
Price D1
Quantity

3. On to … Determinants of Demand

4. DETERMINANTS OF DEMAND
Changes in income
Changes in the prices of related goods
Substitutes: goods that can replace one another
Compliments: goods that are consumed together
Changes in the size or composition of the population
Change in price expectations
Changes in tastes/preferences

5. Practice Problem #1
What would happen to the demand of pizza if you find out pizza causes heart disease?
Determinant?
Increase or decrease in demand?

6. Answer to Practice Problem #1
What would happen to the demand for pizza if you find out that pizza causes heart disease?
Determinant - A change in consumer tastes/preferences; consumer expectations
Decrease in demand

7. Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
Determinant?
Increase or decrease in demand?

8. Answer to Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
Determinant – A change in consumer tastes/preferences
Increase in demand

9. Practice Problem #3
A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
Determinant?
Increase or decrease in demand of Red Bull?

10. Answer to Practice Problem #3
A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
Determinant – A related good (substitute)
Decrease in demand of Red Bull

11. Student allowances and the minimum wage for work increases.
Practice Problem # 4
Student allowances and the minimum wage for work increases.
Determinant?
Increase or decrease in demand of video games?

12. Student allowances and the minimum wage for work increases.
Practice Problem # 4
Student allowances and the minimum wage for work increases.
Determinant – Income increase
Increase in demand of video games

13. Movement Along a Demand Curve Versus a Shift of the Curve
Remember there is a difference between quantity demanded and demand.
Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether.
A change price creates a change in the quantity demanded, other things constant.
This causes a movement along the demand curve.
A change in one of the determinants of demand causes a change in demand.
This causes in a shift of a demand curve. Or a new curve.

14. What determinants would increase the market demand for pizza?

15. Determinants Increasing Demand
Increases in income
Increases in population
Increase in prices of substitute goods
Decrease in price of complement goods
Consumer expectation that prices will increase in the future
Improvement in taste
Increased consumer preferences

16. Determinants of increased demand change the story….. How so?
Original Story
New Story
Quantity demanded of pizza per week (by millions)
Price of pizza 9
$15.00 14
$12.00 19
$9.00 25
$6.00 30
$3.00
---
$0.00
Quantity demanded of pizza per week (by millions)
Price of pizza 15
$15.00 20
$12.00 25
$9.00 30
$6.00 35
$3.00
---
$0.00

17. How would determinants of increased demand change the picture of demand?8 14 20 26 32
Millions of pizzas per week
$15 12 9 6 3
Price per pizza D1 b

18. Increased Market Demand for Pizza8 14 20 26 32
Millions of pizzas per week
$15 12 9 6 3
Price per pizza D1 b f D2

19. What determinants would decrease the market demand for pizza?

20. Determinants Decreasing Demand
Decreases in income
Decreases in population
Decrease in prices of substitute goods
Increase in price of complement goods
Consumer expectation that prices will decrease in the future
Deterioration of taste
Decreased consumer preferences

21. Determinants of decreased demand change the story….. How so?
Original Story
New Story
Quantity demanded of pizza per week (by millions)
Price of pizza 9
$15.00 14
$12.00 19
$9.00 25
$6.00 30
$3.00
---
$0.00
Quantity demanded of pizza per week (by millions)
Price of pizza 5
$15.00 10
$12.00 15
$9.00 20
$6.00 25
$3.00
---
$0.00

22. How would determinants of decreased demand change the picture of demand?8 14 20 26 32
Millions of pizzas per week
$15 12 9 6 3
Price per pizza D1 b

23. Decreased Market Demand for Pizza
$15 12 9 6 3
Price per pizza D1 b j 8 14 20 26 32
Millions of pizzas per week