1. Unit 2: Shifters of Demand

2. What Causes a Shift in Demand?
Change in Price
Stay on the Line
5 Shifters (Determinates) of Demand:
Income
Price of Related Goods
Tastes and Preferences
Expectations
Number of Buyers
Changes in PRICE do NOT shift the curve.
It only causes movement along the curve.

3. Income
Level of Wealth
Normal Goods
Inferior Goods
I  Q.D.
I  Q.D.

4. Price of Related Goods
Substitutes
Instead of Products
RG  Q.D.

5. Substitutes
Substitutes
Instead of Products
RG  Q.D. 5 5

6. Substitutes
Substitutes
Instead of Products
RG  Q.D. 6 6

7. Substitutes
Substitutes
Instead of Products
RG  Q.D. 7 7

8. Substitutes
Substitutes
Instead of Products
RG  Q.D. 8 8

9. Substitutes
Substitutes
Instead of Products
RG  Q.D. 9 9

10. Price of Related Goods Pa  Q.D.b Pa  Q.D.b Substitutes Complements
vs.
Substitutes
Complements
Instead of Products
Together Products
Pa  Q.D.b
Pa  Q.D.b

11. Complements 11 11

12. Complements

13. Tastes and Preferences
Tastes  Q.D.

14. Expectations
(now)
Expect Price  Q.D.
(now)

15. Number of Buyers
Buyers  Q.D.

16. Change in QD vs. Change in Demand
There are two ways to increase quantity from 10 to 20
A to B is a change in quantity demand (due to a change in price)
A to C is a change in demand (shift in the curve)
Price of Cereal A C $3 $2 D2 B D1
Quantity of Cereal

17. Practice
First, identify the determinant (shifter) then decide if demand will increase or decrease
Shifter
Increase or Decrease
Left or Right 1 2 3 4 5 6 7 8
Number of consumers, increase.
Income, decrease.
Substitutes, decrease.
Price doesn’t shift curve, no change.
Tastes and preferences, decrease.
Expectations, increase.
Complements, decrease.

18. Hamburgers (a normal good)
Practice
First identify the determinant (Shifter). Then decide if demand will increase or decrease
Hamburgers (a normal good)
Population boom
Incomes fall due to recession
Price for Carne Asada burritos falls to $1
Price increases to $5 for hamburgers
New health craze- “No ground beef”
Hamburger restaurants announce that they will significantly increase prices NEXT month
Government heavily taxes shake and fries causes their prices to quadruple.
Restaurants lower price of burgers to $.50
Number of consumers, increase.
Income, decrease.
Substitutes, decrease.
Price doesn’t shift curve, no change.
Tastes and preferences, decrease.
Expectations, increase.
Complements, decrease. 21 21

19. Demand Headlines Worksheet
Price
Quantity D