1. Changes in Demand

2. Law of Demand
Law of Demand - the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus. 11

3. Ceteris Paribus Latin for “All other things held constant”
The demand schedule is only taking into account the changes in price.
Not yet considering advertising or the hundreds of other factors that could change demand.

4. Change in Demand
A change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price.
A demand curve is drawn under the assumption of ceteris paribus.
When this assumption is relaxed, the entire demand curves shifts

5. Increase in Demand P D1 D Qd 52

6. Decrease in Demand P D D1 Qd 52

7. Change in Demand
Factors Which Cause a Change in Demand
Income 28

8. Causes
Income
Change in consumer’s income affects their demand for most goods
When you graduate from college and start making a substantial income. Would your demand increase or decrease on an item you would like to have?
It would increase! You would be willing and able to purchase that item at every price. Thus we say that demand increased.

9. Causes Income (Cont’d) Purchasing Distinctions
We usually purchase normal goods – items we demand more of when income increases
Examples: new cars, furniture, pizza
Inferior goods – Items we demand less of when income rises
Examples: macaroni & cheese, used cars, generic cereals

10. Change in Demand Factors Which Cause a Change in Demand Income
Consumer Expectations 28

11. Causes Consumer Expectations Expectations about the future
New millennium
Sale prices starting or ending soon
“Expected future price”

12. Change in Demand Factors Which Cause a Change in Demand Income
Consumer Expectations
Population/Number of Buyers 28

13. Causes Population/Number of Buyers Change in size
Housing and food consumption
Example: Soldiers returning from World War II
The “baby boom”

14. Change in Demand Factors Which Cause a Change in Demand Income
Consumer Expectations
Population/Number of Buyers
Consumer Taste and Advertising 28

15. Causes Consumer Taste and Advertising Huge role in demand of product
Incredible amounts of money spent to increase demand
Example: Super Bowl commercials

16. Change in Demand Factors Which Cause a Change in Demand Income
Consumer Expectations
Population/Number of Buyers
Consumer Taste and Advertising
Prices of Related Goods 28

17. Causes Prices of Related Goods
Demand curve for one good can be affected by change in another
Two types of related goods:
Compliments – goods bought and used together
Example: skis and boots, Peanut Butter & Jelly
Substitutes – goods used in place of another
Example: snowboard in place of skis