6.3 Determinants of Demand

Change in quantity demanded = the quantity demanded for a product may change if the price changes. PQD or PQD Determinants of Demand: 1. Changes in the consumers’ incomes 2. Change in the consumers’ attitudes 3. Change in the price of a complementary product 4. Changes in the price of a substitute products

1. Changes in the consumers’ incomes --A person wins the lottery and now spends much more money daily 2. Change in the consumers’ attitudes --Fashion changes often—leg warmers are out; therefore, people are no longer going to buy them and they will stop being produced

3.Change in the price of a complementary product --CDs go on sale; therefore, there is an increase in the amount of CD players purchased 4. Changes in the price of a substitute products --Instead of buying Tide brand detergent you buy Kroger brand because it is cheaper

Normal Goods = goods for which demand goes up as income goes up EFFECT OF CHANGING INCOME: People with higher incomes can be expected to buy more clothes, CDs, hot fudge sundaes Normal Goods = goods for which demand goes up as income goes up Expensive cars, house, filet mignon, Perrier water Inferior Goods = goods for which demand goes down as income goes up Spam, cigarettes, off brand products

EFFECT OF CHANGING ATTITUDES: Attitudes = tastes and preferences Change in tastes and preferences can cause demand to increase and decrease. What was once popular may not be any longer

EFFECT OF CHANGING PRICE OF SUBSTITUTE GOODS: Substitute products = products that are similar enough that you can replace them Butter and margarine Doritos and Lays Potato Chips If the price of one goes up, then consumers may be inclined to buy the other product.

EFFECT OF CHANGING PRICES OF COMPLEMENTARY GOODS: Complementary goods = goods that go together. The 2 goods are complementary so if there is a decrease in the price of one then there may be an increase in the purchase of the other EX: If the price of snowboards goes down then there may be an increase in the purchases of snowboards and therefore snowboard clothing as well.

INCREASE TO THE RIGHT DECREASE TO THE LEFT Increase in demand—shifts the demand curve to the right Decrease in demand—shifts the demand curve to the left. INCREASE TO THE RIGHT DECREASE TO THE LEFT