Shift in the Shift in the Demand CurveDemand Curve

Consumer EconomicsConsumer Economics

Change in DemandChange in Demand

A change in demand is a shift in A change in demand is a shift in the WHOLE demand curve. People the WHOLE demand curve. People are willing to buy more (or less) at are willing to buy more (or less) at everyevery price. price.

A demand curve is drawn under A demand curve is drawn under the assumption of ceteris paribus.the assumption of ceteris paribus.

When this assumption is relaxed, the When this assumption is relaxed, the entire demand curves shiftsentire demand curves shifts

Increase in DemandIncrease in Demand

P

Qd

D D1

Decrease in DemandDecrease in Demand

P

Qd

DD1

Change in DemandChange in Demand

Factors Which Cause a Change in Factors Which Cause a Change in DemandDemand IncomeIncome

CausesCauses IncomeIncome

Change in consumer’s income affects Change in consumer’s income affects their demand for most goodstheir demand for most goods

When you graduate from college and When you graduate from college and start making a substantial income. start making a substantial income. What might we expect to happen to What might we expect to happen to the amount of CDs you would want the amount of CDs you would want to buy?to buy?

It would increase! You would be It would increase! You would be willing and able to purchase more willing and able to purchase more CDs at every price. Thus we say that CDs at every price. Thus we say that demand increaseddemand increased..

CausesCauses Income (Cont’d)Income (Cont’d)

Purchasing DistinctionsPurchasing Distinctions We usually purchase We usually purchase normal normal

goodsgoods – items we demand more of – items we demand more of when income increaseswhen income increases

Examples: new cars, furniture, pizzaExamples: new cars, furniture, pizza Inferior goodsInferior goods – Items we – Items we

demand less of when income risesdemand less of when income risesExamples: macaroni & cheese, used Examples: macaroni & cheese, used cars, generic cerealscars, generic cereals

Change in DemandChange in Demand

Factors Which Cause a Change in Factors Which Cause a Change in DemandDemand IncomeIncome Consumer ExpectationsConsumer Expectations

CausesCauses

Consumer ExpectationsConsumer Expectations Expectations about the futureExpectations about the future New millenniumNew millennium Sale prices starting or ending Sale prices starting or ending

soonsoon ““Expected future price”Expected future price”

Change in DemandChange in Demand

Factors Which Cause a Change in Factors Which Cause a Change in DemandDemand IncomeIncome Consumer ExpectationsConsumer Expectations Population/Number of BuyersPopulation/Number of Buyers

CausesCauses

Population/Number of BuyersPopulation/Number of Buyers Change in sizeChange in size Housing and food consumptionHousing and food consumption

Example: Soldiers Example: Soldiers returning from returning from World War IIWorld War II

The “baby boom”The “baby boom”

Change in DemandChange in Demand

Factors Which Cause a Change in Factors Which Cause a Change in DemandDemand IncomeIncome Consumer ExpectationsConsumer Expectations Population/Number of BuyersPopulation/Number of Buyers Consumer Taste and AdvertisingConsumer Taste and Advertising

CausesCauses

Consumer Taste and Consumer Taste and AdvertisingAdvertising

Huge role in demand of productHuge role in demand of product Incredible amounts of money Incredible amounts of money

spent to increase demandspent to increase demand

ExampleExample: Super Bowl : Super Bowl commercialscommercials

Change in DemandChange in Demand

Factors Which Cause a Change in Factors Which Cause a Change in DemandDemand IncomeIncome Consumer ExpectationsConsumer Expectations Population/Number of BuyersPopulation/Number of Buyers Consumer Taste and AdvertisingConsumer Taste and Advertising Prices of Related GoodsPrices of Related Goods

CausesCauses

Prices of Related GoodsPrices of Related Goods Demand curve for one good can be Demand curve for one good can be

affected by change in anotheraffected by change in another Two types of related goods:Two types of related goods:

• Compliments – goods bought and used Compliments – goods bought and used togethertogetherExampleExample: skis and boots, Peanut Butter & : skis and boots, Peanut Butter & JellyJelly

• Substitutes – goods used in place of anotherSubstitutes – goods used in place of anotherExampleExample: snowboard in place of skis: snowboard in place of skis