1. How Markets Work A Change in Demand

2. When a factor that affects the buying plan other than the price of the good changes, there is a change in demand. Increase in demand means movement of the demand curve to the right and quantity demanded increases at each price. Decrease in demand means movement of the demand curve to the left and quantity demanded decreases at each price.

3. Increase & Decrease of the Demand Curve Increase in Demand Decrease in Demand P P Q Q

4. Factors bring Changes in Demand 1.The Prices of Related Goods: The related goods are: Substitutes &Complement. A substitute is a good that can be used in place of another one. There is positive relationship between the price of a substitute and the demand for the good. If the price of tea rises the demand for coffee increases and vise versa.

5. Factors bring Changes in Demand A complement is a good is used with another one to satisfy the same needs. There is negative relationship between the price of a complement and the demand for the good. If the price of sugar rises the demand for tea decreases and vise versa.

6. Factors bring Changes in Demand 2.Expected Future Prices: If the price of a good is expected to rise in the future, and if the good can be stored, the demand for the good increases today and vise versa. Examples.

7. Factors bring Changes in Demand 3.Income: Consumers’ income influences demand. When income increases, consumers buy more of most goods and when income decreases, consumers buy less of most goods. The positive relationship between income and demand for the good is true for most goods, they are the normal goods. But the relationship between income and demand for the good is negative for few goods; the inferior goods. Example: air travel and long – distance bus trips.

8. Factors bring Changes in Demand 4.Expected Future Income & Credit: When income is expected to increase in the future. Or when credit is easy to obtain, the demand might increase now. Example. 5.Population : Demand depends on the size and the age structure of the population. The larger the population,the greater the demand for all goods and services and vise versa.

9. Factors bring Changes in Demand Also,the larger the proportion of the population in a given age group, the greater is the demand for the goods and services used by that group. Example. 6.Preferences: Demand depends on preferences. Preferences determine the value that people place on each good and service. Preferences are affected by things such as weather, information and fashion.

10. A change in the quantity demanded A change in the quantity demanded = movement along the demand curve If the price of the good changes, but no other influence on buying plans changes, that means we have movement along the demand curve ; there is a change in the quantity demanded as price changes. Examples:

11. A Change in Demand If the price of a good remains constant,but some other influence on buyers’ plans changes, there is a change in the demand of the good. A Change in Demand =A Shift of the Demand Curve Examples:

12. Table 3.1 p.62 It summarizes what we have studied. The law of demand The change in the quantity demanded due to the changes in the price of the good. Changes in demand happen as a result of the change in the other factors except the price of the good.