Define the following terms: Hold for discussion Write the answers to these: Law of Demand: Substitution Effect: Give example Diminishing Marginal Utility: Give example Purchasing Power:

Changes in Demand 3.2 Demand Shifts: Time allows factors other than price to influence demand significantly. In Economics these factors can shift the entire demand curve of a product to the right or to the left.

Changes in Demand 3.2 Determinants of Demand—Factors that can cause the entire demand curve to shift to either the right or left. 1. Consumer tastes and preferences 2. Market size 3. Income 4. Prices of related goods 5. Consumer expectations

Determinants of Demand Consumer Tastes and Preferences: ex. Changes in music preferences If a groups popularity rises—demand curve shifts to the right If a groups popularity declines— demand curve shifts to the left.

Determinants of Demand Market Size—The size of a market tend to affect demand. Markets expand and contract Nike launches new advertising campaign for its SHOX running shoes. If successful, curve shifts to right

Determinants of Demand 3.2 Government Policy can affect size of markets—China trade policy example New Technology can affect market size Ex. Invention of video and internet cell phones Old cell phone technology—demand curve shifts to the left. New video technology—demand curve shifts to the right.

Determinants of Demand Income—Higher incomes generally allows people to spend more money for goods and services which causes the demand curve to shift to the right. 4. Prices of Related Goods—A change in a products price can affect demand for the products related goods. Ex. Butter/Margarine—Margarine is substituted for butter when price of butter goes up.

Determinants of Demand 3.2 Complementary Goods— Goods that are commonly used with other goods. Ex. Paint / Paintbrushes Price of paint increases— demand for paint and paintbrushes decreases

Determinants of Demand Consumer Expectations—Your expectations for more future income influences your purchases today. Ex. Anticipate a raise in your salary OR If you anticipate being laid off !

Demand Shifts-Examples Tell the determinant and show what will happen—shift right or left? Price of Artificial Sweetener Increases— what happens to sugar demand?

Demand Shifts-Examples Tell the determinant and show what will happen—shift right or left? 1950’s Musicals become “the rage” among year olds. Show what might happen to DVD Sales in this category.

Demand Shifts-Examples Tell the determinant and show what will happen—shift right or left? The government does a retroactive tax cut accompanied by a $1500 rebate check for everyone over 18. What happens to demand for movie tickets?

Demand Shifts-Examples Tell the determinant and show what will happen—shift right or left? Detroit—a rumor spreads that GM is insolvent (doesn’t have sufficient money) and will have to close down 80% of its plants. What happens to demand for work shoes?

Demand Shifts-Examples Tell the determinant and show what will happen—shift right or left? The price of motor oil for automobiles becomes 10x more expensive. What happens to demand for gasoline?