Factors Affecting Demand

1-What is a “change in the quantity demanded”? The movement along the demand curve showing that the amount someone is willing to purchase changes when the price changes.

2-Explain the “Income Effect” That part of a change in quantity demanded due to a change in the buyer’s real income when a price changes.

3-What happens when prices drop? Consumers pay less and have extra income to spend on other items. It makes them feel “richer”

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4-How can an increase in price affect demand? Consumers feel poorer and buy less of an item.

5-The Substitution Effect That part of a change in quantity demanded due to a price change that makes other products less costly. Causes consumers to buy less of a good whose price has increased and more of a similar good whose price has decreased. Similar Products: A rise in the price of Coke causes consumers to buy Pepsi A rise in the price of movie tickets causes consumers to buy fewer tickets and download more movies. A rise in the price of gas causes consumers to switch from driving a car to taking a bus or train. A rise in the price of coffee may cause some to switch to tea.

6-What is a “change in demand”? A shift of the demand curve caused buy certain factors other than price. An increase in demand shifts the curve to the right. A decrease in demand shifts the curve to the left.

Shifts in the Demand Curve Change in the quantity demanded Change in demand

Change in the Quantity Demanded When you move along the demand curve, the change in quantity that people wish to buy an item changes as the price increases or decreases

Change in Demand The entire demand curve shifts as more people wish to buy a certain product. This shift is caused a change in any influence on customer’s buying behavior other than price. Consumers want more or less of the same good at every price.

5 Determinants [or “shifters”] of Demand These cause the demand curve to shift right [increase in demand] or shift left [decrease in demand] 1.Consumer Income 2.Consumer Tastes 3.Price of Related Goods [substitutes and complements] 4.Expectations 5.Number of Consumers

7-Consumer Income a-What happens if consumer income rises? Falls? Rises: Curve Shifts to the Right [increase in demand] Falls: Curve Shifts to the Left [decrease in demand]

Consumer Tastes b-What factors affect consumer tastes? Advertising: Fashion; Trends/Fads Popular: Shifts to the Right Unpopular: Left

Substitutes c-What happens to the demand of a product is the price of its “substitute” goes up? [Coke/Pepsi; hamburgers/hotdogs] Demand increases for the substitute and curve shifts to the Right

7-Complements d- How does an increase in a product’s price affect demand for the products “complement”? [milk and cereal; peanut butter and jelly; hot dogs and mustard; iphones and earbuds] Decreases demand for the product and curve shifts left

Expectations 1-What happens to the demand for a product if consumers think the product will be better in the future? Demand curve shifts left 2-What happens to the for a product if consumers think there will be a shortage on the future? Demand curve shifts right

Number of Consumers 1-What happens to the market demand curve if there is an increase in the number of consumers? Demand curve shifts Right 2-What happens to the market demand curve whenever anyone leaves the market? Demand curve shifts Left

Is it a CHANGE in DEMAND or in the QUANTITY DEMANDED? 1-Holly gets a raise at work and decides that she will by more music downloads. 2-David notices that the price of coffee has increased, so he buys less coffee. 3-George decides not to buy new tires now since he expects tire prices to fall next month. 4-Eric notices that the prices of Coke is higher and as a result buys more Pepsi. 5-As the population ages, more people buy hearing aids. 6-James decides to buy more peanut butter as a result of jelly going on sale. 7-Madeline does not need to buy diapers anymore for her three-year-old son.

CHANGE in DEMAND or in the QUANTITY DEMANDED 1-Holly gets a raise at work and decides that she will by more music downloads. DEMAND: Income rises 2-David notices that the price of coffee has increased, so he buys less coffee. QUANTITY DEMANDED: The price rises, Income Effect 3-George decides not to buy new tires now since he expects tire prices to fall next month. DEMAND: Expectation of future price decrease. 4-Eric notices that the prices of Coke is higher and as a result buys more Pepsi. DEMAND: Substitution Effect

CHANGE in DEMAND or in the QUANTITY DEMANDED 5-As the population ages, more people buy hearing aids. DEMAND: Size of hearing aid market increases. 6-James decides to buy more peanut butter as a result of jelly going on sale. DEMAND: Price of a complement decreases 7-Madeline does not need to buy diapers anymore for her three-year-old son. DEMAND: Size of diaper market decreases

FADS and DEMAND

FADS Bratz Crocs iPods Silly BandzRainbow Loom

FADS Hacky-SackPet Rocks Sea monkeys Frisbee

Fads and Demand With your partner, create your own fad or select an actual fad. On your poster, draw your best representation of that fad and then go through how it affects demand. Include all of the information below. 1-Draw a picture of your fad. 2-Create a demand schedule for your fad. 3-Create a demand curve for your product based on the demand schedule. Include the points for quantity demanded. 4-On your demand curve, add one of the determinants of demand and the direction your demand curve will shift: (income, tastes, substitutes, complements, expectations, number of consumers) 5-List 1 substitute and 1 complement for your fad 6-Create the demand curve shifts for 1 substitute and 1 complement.