DEMAND What the people want

Review A demand curve illustrates how much of a good would be purchased (i.e. the quantity demanded) at each price.

Review The law of demand states that as prices rise, people are willing and able to buy less of a good and, hence, the quantity demanded decreases. (D-curve always slopes down.)

Review When price changes, then there is a change in the quantity demanded.

Moving Along the Curve vs. Shifting the Curve Movement along the demand curve is not the same as a shift of the demand curve. (I will definitely try to trick you on this!!!)

Moving Along the Curve vs. Shifting the Curve Movement along the demand curve. Shift in the entire demand curve

Demand Shifters There are five broad changes that can change the demand for a good, even when there is no change in price. 1. A change in income 2. A change in the price of other goods 3. A change in the expected future price of the good 4. A change in consumer information 5. A change in tastes or preferences

Demand Shifters 1. Change in Income (normal vs. inferior goods) If the demand curve for a good shifts to the right as consumers’ income increases, then that good is considered to be a normal good. (E.g. movies.) If the demand curve shifts to the left as consumers’ income increases, then that good is considered to be an inferior good. Examples? Fast food is an example of an inferior good (i.e. demand falls as income increases.)

Demand Shifters – Mo’ $, mo’ demand

Demand Shifters 2. Prices of Other Goods (Complements and Substitutes) Demand for a good can be affected by changes in the price of other products that are used along with that good (complements.) An increase in the price of one complement leads to a decline in demand for the other complement. E.g. an increase in the price of airline tickets will result in decreased demand for rental cars.

Demand Shifters - Complements

Demand Shifters 2. Prices of Other Goods (Complements and Substitutes) Demand for a good can also be affected by products that can be used instead of that good (substitutes.) E.g. lots of substitutes when it comes to caffeinated beverages (coffee, tea, soda, energy drinks, etc.) If the price of one of these goods – let’s say coffee – increases, people will choose to purchase more tea or soda and less coffee.

Demand Shifters 3. Future Expectations About Price Most people react to expectations about price changes in a predictable way. E.g., if someone shopping for furniture sees an IKEA commercial indicating that a 50% off sale will begin this weekend, they will likely postpone their purchase. Or, if a 50% off sale is ending this weekend, the shopper is likely to buy more now.

Demand Shifters – Future Expectations

Demand Shifters 4. Consumer Information The amount of information available to consumers when they make their purchases is a part of their demand decisions. E.g. using the internet or reviews in magazines, etc. can help guide our decisions and can incline us to purchase some goods and services rather than others. Good reviews shift the demand curve to the right; bad reviews shift the demand curve to the left.

Demand Shifters 5. Tastes and Preferences As consumers come to know and like a product, demand for it will increase, shifting the demand curve to the right. As tastes and preferences change, old products will often go out of favor (e.g. no longer cool.) Advertising and marketing work to create these widespread changes in tastes and preferences.