Chapter 4, Section 2

 There are a lot of reasons why demand for an item increases or decreases…  Price is one easy way to affect demand, but there are others…  In the case of a fad, it might be that consumer tastes are changing  In the case of homes, it might be the closing of a big factory in a town, or the opening of a new hospital

Two main reasons: Income effect – the change in the amount that consumers will buy because the purchasing power of their income changes. Substitution effect – a change in the amount that consumers will buy because they buy substitute goods instead. These cause a…

Price per DVD (in dollars) Quantity Demanded of DVDs A change in quantity demanded is an increase or decrease in the amount demanded because of a change in price.

1. Income – Increases in income increase demand for most goods, while decreases in income decrease demand for most goods. Goods that follow this pattern are considered normal goods. Good that consumers demand less of as their incomes rise are considered inferior goods.

2. Market Size – If the number of consumers increases, so will demand. If the number of consumers decreases, so will demand.

3. Consumer Tastes – If a good becomes more popular, demand will rise. If a good loses popularity, demand will fall.

4. Consumer Expectations – If you think the price of a good may change, that expectation can determine whether you buy now or wait until later.

5. Substitute goods – Goods and services that can be used in place of one another are called substitutes. If the price of a substitute drops, more people will choose to buy it instead of the original item. Demand for the substitute will increase as demand for the original item decreases. If the price of the substitute rises, more people will choose to buy the original item and demand for it will increase.

5. Substitute goods –

6. Complementary goods – Goods and services that are used together, so a rise in demand for one increases the demand for the other.

Price per DVD (in dollars) Quantity Demanded of DVDs A change in demand occurs when something prompts consumers to buy different amounts at every price.

Price per DVD (in dollars) Quantity Demanded of DVDs A change in demand occurs when something prompts consumers to buy different amounts at every price.

 Change in Demand:  Change in 1 of the 6 factors that affect demand  A SHIFT of the entire curve to the - -  Left – decrease in demand  Right – increase in demand  Change in Quantity Demanded:  Change in price  Movement ALONG the demand curve