Understanding Demand Shifters in Economics
Explore the concept of demand shifters in economics, including the factors that influence changes in demand such as consumer income, number of consumers, prices of substitute and complimentary goods, consumer preferences, and expectations. Learn how changes in these factors impact the quantity demanded and shift the demand curve. Discover why price changes only affect quantity demanded, not demand itself.
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Presentation Transcript
Law of Demand Price Quantity Demand Demand Curve Quantity Demanded Non-Price Factors Demand Shifters
Law of Demand* When the price of a good or service increases, the quantity demanded for that good or service decreases OR When the price of a good or service decreases, the quantity demanded for the good or service increases. Demand The relationship between all various prices and all quantities consumers are willing and able to buy during some time period. Quantity Demanded The amount of a good or service people are willing and able to buy at one particular price. It is represented by a single point on the demand curve for one price and one quantity. Demand Shifters
Non-price factors that created an increase or decrease in demand are called demand shifters. These factors include: Changes in consumer income Changes in the number of consumers Changes in the price of substitute goods Changes in the price of complimentary goods Changes in consumer taste and preference Changes in consumer expectation Reminder: a change in price does NOT change demand. It changes the quantity demanded. Demand Shifters
Demand increases (shifts to the right) when the quantity demanded at every given price increases. Demand decreases (shifts to the left) when the quantity demanded at every given price decreases. Q Demand Shifters
If consumer income increases, demand for most goods and services will increase. The reverse is also true: if consumer income decreases, demand for most goods and services will decrease. For example: If workers at a manufacturing facility sign a new contract that provides a 5% raise, these workers will have more income and their demand for goods and services will increase increase. If the government increases taxes, consumers will have less take-home pay, and as a result, their demand for goods and services will decrease decrease. Demand Shifters
If the number of consumers in the market for a product increases, the demand for the product will increase. If the number decreases, the demand for the product will decrease. For example: If a new high school is built in the same block as a fast food restaurant, the demand for the fast-food restaurant's products will increase When the school closes for summer vacation, the demand for the fast-food restaurant's products will decrease decrease. increase. Demand Shifters
A change in the price of one good can change the demand for another good. One type of related goods is substitutes goods that are bought in place of other goods. For example: If the price of cable TV increases increases, the demand for home streaming services may increase as consumers switch from cable TV to home streaming services. If the price of Hamburger Heaven's hamburgers decreases Burger's hamburgers may decrease decrease as consumers begin to go to Hamburger Heaven, instead of Big Burger, for a less expensive burger. decreases, the demand for Big Demand Shifters
A change in the price of one good can change the demand for another good. One type of related goods is complements goods that are purchased together. For example: A decrease decrease in the price of strawberries will cause an increase whipped cream. An increase increase in the price of hamburger will cause a decrease hamburger buns. increase in the demand for decrease in the demand for Demand Shifters
If consumer tastes for a product change, the demand for the product will change. For example: If interior design magazines are showing designs with bold printed wallpaper, the demand for bold printed wallpaper will increase If interior design magazines are showing articles against using bold printed wallpaper, the demand for bold printed wallpaper will decrease increase. decrease. Demand Shifters
If consumers expect the price for a product to increase (or decrease) in the future, the current demand for the good will change. For example: If prices for a gaming console are expected to increase right after Memorial Day, the demand for the gaming console will increase If prices for a gaming console are expected to drop right before Christmas, the demand for the gaming console will decrease increase in early May. decrease in November. Demand Shifters
Suppose there is a new bottled drink called Bubble Soda. Suppose there is a new bottled drink called Bubble Soda. What would happen to the demand for Bubble Soda if: a famous celebrity started advertising for it, saying it is his/her favorite drink? it started selling in all school cafeterias? it started to make people s teeth turn green? the price increased? the price of Too Cool Cola (a substitute) is decreased? many people lost their jobs and had to reduce their spending? the price of Bubble Corn (a complement) is decreased? Demand Shifters
