1. AP Microeconomics Factors that Affect Demand

2. Reasons for Shifts in a Demand Curve There is a very clear distinction between a change in quantity demanded and a change in demand. A change in quantity demanded occurs when price changes; it is illustrated by movement along the curve from one point to the next. However, a change in demand (a shifting of the entire curve) is not caused by a change in price but other factors:

3. Income & Wealth As income increases, we demand more g&s. However, we then demand different types of g&s. Normal goods: demand goes up for these goods when income is higher and goes down when income is lower –Ex) restaurant meals, prime rib, jewelry, Mercedes, airplane trips Inferior goods: goods for which demand tends to fall when income rises. –Ex) Raman noodles, macaroni & cheese, bologna, public transportation

4. Complementary Goods Goods that “go together” As price goes up for one, demand goes down for the other. As price goes down for one, demand goes up for the other. –Ex) DVD players and DVDs, PS3 & games, razor handles & blades, gasoline & cars, batteries/electricity & most things

5. Substitutes Goods that can serve as replacements for one another Products that are identical products are called perfect substitutes. As price goes up for one, demand goes up for the replacement As price goes down for one, demand goes down for the replacement –Ex) Butter & Margarine, sugar & sweet n’ low, beef & chicken

6. Tastes & Preferences Trends, fads, and popularity affect how consumers feel about products Advertising campaigns can affect consumer’s demand. Hard to measure, varies from person to person

7. Expectations Consumer’s positions in the future (career aspirations) can affect demand Knowledge about prices and availability of goods in the future can also affect demand

8. RULES: When Demand is increased due to one of the above reasons, the curve will shift to the When Demand is decreased due to one of the above reasons, the curve will shift to the RIGHT LEFT

9. Practice Problems #1: Good Morning America, Ellen, and Oprah have all done specials on the new it toy to have for this season, the Fisher Price Imaginex Dinosaur!! How will this affect the demand for the Dinosaur? Price Quantity D0D0 D1D1 The Demand for the dinosaur will increase due to consumer tastes; because advertising encourages consumers to buy products.

10. Practice Problems #2: The FDA announces a new report that butter saturated diet can be directly linked to the growing heart disease here in America. How will this affect the demand for margarine?

11. Practice Problems #3: Mrs. Bieron has won $2.3 million in the lottery as you see her skipping merrily out the building you hear her yell out her last AP Economics question. How will this affect her demand for inferior goods?