Factors Affecting Demand Ch 4 Section 2

Change in Quantity Demanded Movement along the demand curve showing a change in the quantity of a product purchased due to a change in price.

Income Effect A change in price causes the quantity demanded to change and effect an individual’s real income. See Chart on pg 96

Substitution Effect Change in quantity demanded due to change in the relative price of a product. When a change in price causes a change in quantity demanded, it is shown graphically by a movement along the demand curve itself.

Change in Demand Price remains the same, but people are willing to buy different amounts at the same price. Shown as a shift in the demand curve. Reasons for a change in demand: Consumer Income Consumer Tastes Substitutes Complements Change in expectations Number of consumers

Consumer Income When a consumer’s income increases, they are able to buy more goods and services. Increase in income= demand curve shifts right. Decrease in income=demand curve shifts left.

Consumer Tastes Fads or trends cause consumers to desire a certain product more than others. When consumer tastes increase for a given product the demand curve shifts to the right. When desires for a product decreases the demand curve shifts to the left.

Substitutes A change in the price of a related product may cause a change in demand of a product. The demand for a product goes up as the price for its substitute increases. Example: margarine vs. butter

Complements A product that is related to another product. Example: camera and film When the price of cameras go down, the demand for films increases.

Change in Expectation The introduction of a new, more improved product in the future could cause people to buy less of a product. This causes a leftward shift in the demand curve of the product. Example: possible food shortages would cause consumers to stock up on food. (shift to the right for the demand curve)

Number of Consumers As more consumers enter the market for a product, it increases the demand. (shift to the right in the demand curve) This will also affect pricing for the market. This will be discussed in Chapter 6.