Unit 2: Shifters of Demand

What Causes a Shift in Demand? Change in Price Stay on the Line 5 Shifters (Determinates) of Demand: Income Price of Related Goods Tastes and Preferences Expectations Number of Buyers Changes in PRICE do NOT shift the curve. It only causes movement along the curve.

Income Level of Wealth Normal Goods Inferior Goods I  Q.D. I  Q.D.

Price of Related Goods Substitutes Instead of Products RG  Q.D.

Substitutes Substitutes Instead of Products RG  Q.D. 5 5

Substitutes Substitutes Instead of Products RG  Q.D. 6 6

Substitutes Substitutes Instead of Products RG  Q.D. 7 7

Substitutes Substitutes Instead of Products RG  Q.D. 8 8

Substitutes Substitutes Instead of Products RG  Q.D. 9 9

Price of Related Goods Pa  Q.D.b Pa  Q.D.b Substitutes Complements vs. Substitutes Complements Instead of Products Together Products Pa  Q.D.b Pa  Q.D.b

Complements 11 11

Complements

Tastes and Preferences Tastes  Q.D.

Expectations (now) Expect Price  Q.D. (now)

Number of Buyers Buyers  Q.D.

Change in QD vs. Change in Demand There are two ways to increase quantity from 10 to 20 A to B is a change in quantity demand (due to a change in price) A to C is a change in demand (shift in the curve) Price of Cereal A C $3 $2 D2 B D1 0 10 20 Quantity of Cereal

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Increase or Decrease Left or Right 1 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease.

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease Hamburgers (a normal good) Population boom Incomes fall due to recession Price for Carne Asada burritos falls to $1 Price increases to $5 for hamburgers New health craze- “No ground beef” Hamburger restaurants announce that they will significantly increase prices NEXT month Government heavily taxes shake and fries causes their prices to quadruple. Restaurants lower price of burgers to $.50 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 21 21

Demand Headlines Worksheet Price Quantity D