Shift in the Demand Curve Consumer Economics

Change in Demand A change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price. A change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price. A demand curve is drawn under the assumption of ceteris paribus. A demand curve is drawn under the assumption of ceteris paribus. When this assumption is relaxed, the entire demand curves shifts When this assumption is relaxed, the entire demand curves shifts

Increase in Demand P QdQd D D1D1

Decrease in Demand P QdQd D D1D1

Change in Demand Factors Which Cause a Change in Demand Factors Which Cause a Change in Demand Income Income

Causes Change in consumer’s income affects their demand for most goods Change in consumer’s income affects their demand for most goods When you graduate from college and start making a substantial income. What might we expect to happen to the amount of CDs you would want to buy? When you graduate from college and start making a substantial income. What might we expect to happen to the amount of CDs you would want to buy? It would increase! You would be willing and able to purchase more CDs at every price. Thus we say that demand increased. It would increase! You would be willing and able to purchase more CDs at every price. Thus we say that demand increased.

Causes Income (Cont’d) Income (Cont’d) Purchasing Distinctions We usually purchase normal goods – items we demand more of when income increases We usually purchase normal goods – items we demand more of when income increases Examples: new cars, furniture, pizza Inferior goods – Items we demand less of when income rises Inferior goods – Items we demand less of when income rises Examples: macaroni & cheese, used cars, generic cereals

Change in Demand Factors Which Cause a Change in Demand Factors Which Cause a Change in Demand Income Income Consumer Expectations Consumer Expectations

Causes Expectations about the future Expectations about the future New millennium New millennium Sale prices starting or ending soon Sale prices starting or ending soon “Expected future price” “Expected future price”

Change in Demand Factors Which Cause a Change in Demand Factors Which Cause a Change in Demand Income Income Consumer Expectations Consumer Expectations Population/Number of Buyers Population/Number of Buyers

Causes Change in size Change in size Housing and food consumption Housing and food consumption Example: Soldiers returning from World War II The “baby boom” The “baby boom”

Change in Demand Factors Which Cause a Change in Demand Factors Which Cause a Change in Demand Income Income Consumer Expectations Consumer Expectations Population/Number of Buyers Population/Number of Buyers Consumer Taste and Advertising Consumer Taste and Advertising

Causes Huge role in demand of product Huge role in demand of product Incredible amounts of money spent to increase demand Incredible amounts of money spent to increase demand Example: Super Bowl commercials

Change in Demand Factors Which Cause a Change in Demand Factors Which Cause a Change in Demand Income Income Consumer Expectations Consumer Expectations Population/Number of Buyers Population/Number of Buyers Consumer Taste and Advertising Consumer Taste and Advertising Prices of Related Goods Prices of Related Goods

Causes Demand curve for one good can be affected by change in another Demand curve for one good can be affected by change in another Two types of related goods: Two types of related goods: Compliments – goods bought and used together Compliments – goods bought and used together Example: skis and boots, Peanut Butter & Jelly Substitutes – goods used in place of another Substitutes – goods used in place of another Example: snowboard in place of skis