1. Factors Affecting Demand
Econ 9/25

2. Warm Up
According to MSNBC News, nationwide the average number of children playing baseball, America’s once- favorite pastime, has tumbled nearly 20%.
How does this affect the economy in the United States? What goods are being bought less? What goods are being bought more?

3. Change in Quantity Demanded
Change in quantity demanded: a movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price
Ex. Price drops from $15 to $10, change in quantity from 6 to 10.

4. The Income Effect
Income Effect: If prices drop, consumers have more real income to spend
Ex: CDs are $15 each, buy 6 CDs ($90 spent)
If price falls to $10, you only spend $60.
You may buy even MORE CDs with your “extra” $30
Therefore, Quantity demanded: increases from 6 to 9 units

5. Substitution Effect
Change in the quantity demanded because change in the price relative to other goods
Ex. Price of CDs falls from $15 to $10 – CDs are relatively cheaper now than alternatives
Therefore, you are more likely to replace a high cost item with a lower cost item (ex: CDs instead of concert tickets)

6. Change in Demand A complete shift in the demand curve
People willing to buy different amounts at the same prices before

7. Graph the following demand schedules on the same set of axes to form two demand curves.
Price Quantity Demanded
(D1)
Price Quantity Demanded
(D) 20 2 15 3 10 4 5 20 4 15 5 10 6 7

8. With a neighbor:
1. Check each other’s graph
2. Discuss: what could cause this shift?

9. Determinants of Demand
AKA Demand Shifters
1. Consumer income
Income goes up  can afford to buy more
2. Consumer tastes/preferences:
Successful advertisement  people will buy more
Trends new and old
3. Substitutes: two goods that can be used in place of each other
If the price of one goes up, the demand for the other increases
Ex. Butter and margarine

10. Determinants of Demand
4. Complements: use of one increases with the use of the other
If price of one goes up, demand of the other goes down.
Ex. Hot dogs and hot dog buns
5. Change in expectation
Example: iPhone X, weather forecasts
6. Number of consumers: Changes affect individual demand schedules, market demand curve
If more customers enter the market, demand increases

11. Demand Shift Practice
Product: SUVs. Scenario: Because of world shortages, the price of oil has sharply increased.
Product: TVs (considered a normal good). Scenario: People are earning more money this year than last.
Product: Coffee in the US. Scenario: Immigration into the US continues to increase.
Product: United Airline Tickets. Scenario: American Air has raised the price of their coach plane tickets.