1. Determinants of Demand
DEMAND terms
Ceteris paribus
Law of Demand
Demand schedule
Demand curve/graph
CQD vs CID

2. Determinants of Demand
When price changes, quantity demanded will change. That is a movement along the curve. This is a CQD.
When factors other than price changes, demand changes the whole demand curve will shift This is a CID.
These five factors are called the determinants of the demand.

3. Determinants of Demand
1. Change in a consumer’s income 2. Change in a consumer’s preference 3. Change in the number of consumers 4. Change in the price of a related good 5. Change in a consumer’s expectations

4. Don’t tell anyone but…
I pee in P.E.!
(IPNPE)

5. Determinants of Demand
1. I = Change in Consumer Income:
Change in salary, tax rates, spending habits, etc.
Rise in income leads to
increased demand for normal goods
decreased demand for inferior goods

6. Determinants of Demand
1. I = Change in Consumer Income:
Examples
Steak vs. TV dinner
Brand name vs. store brand
House vs. apartment
New vs. used car
Normal goods
G&S for which demand increases as income increases (and vice versa)
Inferior goods
G&S for which demand increases as income decreases (and vice versa)
vs.

7. Determinants of Demand
2. P = Change in Consumer Preferences:
Think fads: organic foods, Cabbage Patch dolls, styles of clothing; based on popularity

8. Determinants of Demand
3. N = Change in the Number of Buyers:
More consumers lead to an increase in demand
Warner Robins: 1990
Population = 46k
Restaurants = < 5
Warner Robins: 2018
Population = 74k
Restaurants = > 50

9. Determinants of Demand
4. P = Change in the Price of related goods:
a. Substitute goods: price of substitute and demand for the other good are directly related. OR OR OR
If the price of Good A (related good) INcreases, the demand for Good B (original good) INcreases, too!

10. Determinants of Demand
4. P = Change in the Price of related goods:
b. Complementary goods: price of complement and demand for the other good are inversely related.
AND
AND
If the price of Good A (related good) DEcreases, the demand for Good B (original good) INcreases

11. Determinants of Demand
5. E = Change in Consumer Expectations of the Future:
a. Future PRICE: consumers’ current demand will increase if they expect higher future prices (get it now while it’s cheap!); their demand will decrease if they expect lower future prices (wait ‘til the prices go down).
Example: gas, getting a loan

12. Determinants of Demand
5. E = Change in Consumer Expectations of the Future:
b. Future INCOME: consumers’ current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income.
Example: eating out, buying a house

13. What is the determinant and which way is the shift
The price of DVD goes down.
Just a change in price, so… CQD
I’m waiting for the price of DVDs to go down.
Expectation, to the left (current demand, not future!)
If the price of premium gas goes up, what happens to the demand for regular gas?
Price of related (substitute) goods, to the right
If the price of fresh-squeezed OJ increases, what happens to the demand for powdered orange drink?

14. I pee in P.E.! Change in consumer I____ Change in consumer P____
Change in the N____ of consumers
Change in the P____ of a related good
Change in consumer E____

15. I pee in P.E.!
A change in… I P N E