Determinants of Demand DEMAND terms Ceteris paribus Law of Demand Demand schedule Demand curve/graph CQD vs CID

Determinants of Demand When price changes, quantity demanded will change. That is a movement along the curve. This is a CQD. When factors other than price changes, demand changes the whole demand curve will shift. This is a CID. These five factors are called the determinants of the demand.

Determinants of Demand 1. Change in a consumer’s income 2. Change in a consumer’s preference 3. Change in the number of consumers 4. Change in the price of a related good 5. Change in a consumer’s expectations

Don’t tell anyone but… I pee in P.E.! (IPNPE)

Determinants of Demand 1. I = Change in Consumer Income: Change in salary, tax rates, spending habits, etc. Rise in income leads to increased demand for normal goods decreased demand for inferior goods

Determinants of Demand 1. I = Change in Consumer Income: Examples Steak vs. TV dinner Brand name vs. store brand House vs. apartment New vs. used car Normal goods G&S for which demand increases as income increases (and vice versa) Inferior goods G&S for which demand increases as income decreases (and vice versa) vs.

Determinants of Demand 2. P = Change in Consumer Preferences: Think fads: organic foods, Cabbage Patch dolls, styles of clothing; based on popularity

Determinants of Demand 3. N = Change in the Number of Buyers: More consumers lead to an increase in demand Warner Robins: 1990 Population = 46k Restaurants = < 5 Warner Robins: 2018 Population = 74k Restaurants = > 50

Determinants of Demand 4. P = Change in the Price of related goods: a. Substitute goods: price of substitute and demand for the other good are directly related. OR OR OR If the price of Good A (related good) INcreases, the demand for Good B (original good) INcreases, too!

Determinants of Demand 4. P = Change in the Price of related goods: b. Complementary goods: price of complement and demand for the other good are inversely related. AND AND If the price of Good A (related good) DEcreases, the demand for Good B (original good) INcreases

Determinants of Demand 5. E = Change in Consumer Expectations of the Future: a. Future PRICE: consumers’ current demand will increase if they expect higher future prices (get it now while it’s cheap!); their demand will decrease if they expect lower future prices (wait ‘til the prices go down). Example: gas, getting a loan

Determinants of Demand 5. E = Change in Consumer Expectations of the Future: b. Future INCOME: consumers’ current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income. Example: eating out, buying a house

What is the determinant and which way is the shift The price of DVD goes down. Just a change in price, so… CQD I’m waiting for the price of DVDs to go down. Expectation, to the left (current demand, not future!) If the price of premium gas goes up, what happens to the demand for regular gas? Price of related (substitute) goods, to the right If the price of fresh-squeezed OJ increases, what happens to the demand for powdered orange drink?

I pee in P.E.! Change in consumer I____ Change in consumer P____ Change in the N____ of consumers Change in the P____ of a related good Change in consumer E____

I pee in P.E.! A change in… I P N E