1. Shifts of the Demand Curve
Chapter 4, Sec. 2

2. Review Draw a demand curve for Wendy’s Combo #1, small size:
Combo Cost
# bought per day
$2.99
350
$3.50
300
$4.00
275
$4.50
225

3. You try it
Think of a consumer good you and your classmates would purchase and create a price schedule for it with at least four different prices.
Interview 10 people and ask them the quantity they would buy at the four different prices.
Draw a demand curve with your data.

4. Changes in Demand
A DC is accurate only as long as there are no changes other than price that could affect the consumer’s decision.
In other words, as long as the ceteris paribus assumption is true.
Ceteris paribus – “all other things held constant”

5. Dropping the ceteris paribus rule
Allows other factors to change
No longer move ALONG the DC but the entire curve shifts to the right or left.
This means that at EVERY price, consumers buy a different quantify than before.
This shift is referred to as change in demand.
Example: Macon is hit by a heat wave so people no longer feel hungry for BBQ and demand less BBQ at every price.

6. What causes a shift?
Income level – an increase in income will cause you to buy MORE of a normal good at every price level (shift to right) and a decrease in income will cause a shift to the left.
AND – an increase in income will cause you to buy LESS of an inferior good (shift to left) and a decrease in income will cause a shift to the right.

7. Normal & Inferior Goods
Normal goods – Goods that consumers demand more of when their incomes increase.
Inferior goods – goods that you would buy in smaller quantities, or not at all, if your income were to rise. Example: generic cereals, used cars

8. What causes a shift, cont.
Consumer Expectations – the current demand for a good is positively related to its expected future price.
Example: The $ pair of boots I want to buy are going on sale in two weeks so my demand drops to zero. OR The $ pair of boots I want to buy on pay day are going up in price tomorrow, so I’m more likely to buy them today.

9. What causes a shift, cont.
Population – changes in the size of the population will also affect the demand for most products.
Example: Baby Boomers

10. What causes a shift, cont.
Consumer Tastes and Advertising – Changes in tastes and preferences cannot be explained by changes in income or population or worries about future price increases.
Example: fads, fashion, bell bottom jeans, pet rocks, etc.
Advertising IS considered a factor that shifts demand curves because it plays a role in many trends. What are some current trends?

11. Prices of Related Goods
Complements – are two goods that are bought and used together. Example: skis & ski boots
Substitutes – goods used in place of one another. Example: ski boards replacing skis

12. Classwork (for Romello)
Page 88, 1-4 and 7-8
You do NOT need to copy the question.
You may work with a partner! Uno partner!!!