A Shift In The Demand Curve

Focus Activity How do you think you would show (using the Demand Curve) an increase in the Demand for a good? P D Q 0 D2

Ceteris Paribus Ceteris paribus is a Latin phrase economists use meaning “all other things held constant.” Ceteris paribus is a Latin phrase economists use meaning “all other things held constant.” A demand curve is accurate only as long as the ceteris paribus assumption is true. A demand curve is accurate only as long as the ceteris paribus assumption is true. When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts. When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.

The Demand Curve Movement along the Demand Curve means that the Price has changed Q P D 0 Q1Q2 P1 P2

The Demand Curve P D Q D1D1 If it shifts to the Right what has happened? Demand has Increased 0

The Demand Curve P D1D1 Q D 0 What does a shift to the left mean? Demand has Decreased… “LEFT IS LESS!”

Factors that Cause Shifts 1. Income 1. Income Changes in consumers incomes affect demand. Changes in consumers incomes affect demand. A normal good is a good that consumers demand more of when their incomes increase. A normal good is a good that consumers demand more of when their incomes increase. An inferior good is a good that consumers demand less of when their income increases. An inferior good is a good that consumers demand less of when their income increases.

Factors that Cause Shifts 2. Consumer Expectations 2. Consumer Expectations Whether or not we expect a good to increase or decrease in price in the future greatly affects our demand for that good today. Whether or not we expect a good to increase or decrease in price in the future greatly affects our demand for that good today. Example: Anticipation of Sales Example: Anticipation of Sales

Factors that Cause Shifts 3. Population 3. Population Changes in the size of the population also affects the demand for most products. Changes in the size of the population also affects the demand for most products.

Factors that Cause Shifts 4. Consumer Tastes and Advertising 4. Consumer Tastes and Advertising Advertising plays an important role in many trends and therefore influences demand. Advertising plays an important role in many trends and therefore influences demand.

Prices of Related Goods 5.Prices of Related Goods The demand curve for one good can be affected by a change in the price for another good. Complements are two goods that are bought and used together. Example: skis and ski boots Complements are two goods that are bought and used together. Example: skis and ski boots Substitutes are goods used in place of one another. Example: skis and snowboards Substitutes are goods used in place of one another. Example: skis and snowboards