Changes in Demand Why and How will the Demand Curve move?

Changes in Demand Changes in Demand  If anything other than the price of the good changes, shift the demand curve for the good. This is called a change in demand.  Remember this: IRDL Increase Right, Decrease Left

Increase in Demand Price Quantity Demand 1 Demand 2 If demand increases because of a change in a factor other than price the curve moves to the right (because at every price level, people are willing to buy more) 1510

Decreases in Demand  If demand decreases because of a change in a factor other than price the curve moves to the left (because at every price level, quantity demanded decreases Price Quantity Demand 2 Demand

Demand Determinants – factors other than price that cause the demand curve to shift  PINTE  P - Prices of Related Goods (Complements/Substitutes)  I – Income  N – Number of Consumers  T – Tastes and Preferences  E – Expectations of Future Pricing

Complements/Substitutes  Complements – goods that complement one another (typically bought together)  Substitutes – goods that can be used in place of each other

Example - Substitutes – Dell and HP Computers The price of Dell computers increases. What happens to quantity demanded for Dell computers? The QD of Dell computers decreases. What will happen to the DEMAND for HP computers (the substitute) Demand will INCREASE for HP Computers. P Q P Q Dell HP P2 P1 Q1Q2 D1 D2

Substitutes  If the price of a good increases, demand for the substitute will increase  If the price of a good decreases, demand for the substitute will decrease

Complements Ex. Hot Dogs and Hot Dog Buns  The price of hot dogs decreases.  What happens to QD for hot dogs?  QD for hot dogs increases  What happens to Demand for Hot Dog Buns (the complementary good)  Demand for Buns Increases P Q P2 P1 Q2Q1 Hot Dogs P Q Buns D1 D2

Complements  If the price of the good decreases, demand for the complementary good increases.  If the price of the good increases, demand for the complementary good decreases.

Expectations of Future Pricing  If people expect the price to go up later, they will buy more NOW – demand will increase  If people expect the price to go down later, they will buy LESS now – demand will decrease