1. Shifts in Demand
Unit 2

2. Demand Review What is demand? What is the Law of Demand?
What makes demand have a downward slope?

3. Demand Curve
Inverse relationship between price and quantity demanded
Price
Quantity D
P Qd
P Qd

4. Change in Quantity Demanded
Changes in price cause a change in quantity demanded
Illustrated by moving from one point to another on the demand curve

5. Changes in Demand
INCREASE in Demand: people are willing and able to buy MORE of a good AT EVERY PRICE LEVEL
DECREASE in Demand: People are willing and able to buy LESS of a good AT EVERY PRICE LEVEL
Illustrated by shifting the entire demand curve

6. Increase in Demand Price D2 D1 Quantity
INCREASE in demand shifts in the demand curve to the RIGHT
Price
Quantity D1

7. Decrease in Demand Price D1 D2 Quantity
DECREASE in demand shifts in the demand curve to the LEFT
Price
Quantity D1 D2

8. Why Demand Shifts: Determinants of Demand
Income
Tastes and Preferences
Substitute Goods
Complementary Goods
Weather
Number of Buyers
Expectations

9. Income: Inferior vs. Normal Goods
Inferior Goods
Demand decreases when income increases
Demand increases when income decreases
Normal Goods
Demand increases when income increases
Demand decreases when income decreases

10. Tastes and Preferences
Demand increases and decreases with changes in tastes/preferences
Fads causes changes in demand
Advertising influences consumers’ tastes

11. Price of Substitute Goods
If price of one good increases, the quantity demanded decreases.
DEMAND for its SUBSTITUTE INCREASES
If price of a good decreases, the quantity demanded increases
DEMAND for its SUBSTITUTE DECREASES

12. Price of Substitute Goods
Price of of a Good Increases
Quantity Demanded Decreases
DEMAND for Substitute Good Increases
Price of of a Good Decreases
Quantity Demanded Increases
DEMAND for Substitute Good Decreases

13. Price of Complementary Goods
If price of one good increases, the quantity demanded decreases.
DEMAND for its COMPLEMENT also DECREASES
If price of a good decreases, the quantity demanded increases
DEMAND for its COMPLEMENT also INCREASES

14. Price of Complementary Goods
Price of of a Good Increases
Quantity Demanded Decreases
DEMAND for Complementary Good Decreases
Price of of a Good Decreases
Quantity Demanded Increases
DEMAND for Complementary Good Increases

15. Number of Buyers INCREASE of # of buyers INCREASES demand
DECREASE of # of buyers DECREASES demand

16. Expectations Expectations for future income
Demand increases with expected increase in income
Demand decreases with expected decrease in income

17. Expectations Expectations for future prices
If you expect prices to increase in the future, demand will increase now
If you expect prices to decrease in the future, demand decreases now

18. Expectations Expectations for what product will do for you
If product will be good for you, demand increases
If product will be bad for you, demand decreases