How does the Demand Curve Shift?

How does the Demand Curve Shift? Do Now: Think of something you bought more of in Middle School than you do now & Think of something you buy more of n...
Author: Ashley Hines
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How does the Demand Curve Shift? Do Now: Think of something you bought more of in Middle School than you do now & Think of something you buy more of now compared to Middle School. WHY? 1

Demand Review 1. What are the two key aspects of the definition of demand? 2. What is the Law of Demand? 3. Give an example of the substitution effect 4. Give an example of the income effect 5. Give an example of the law of diminishing marginal utility 6. Explain how the law of diminishing marginal utility causes the law of demand 7. How do you determine the MARKET demand for a particular good? (from reading) 8. Name 10 fast food places 2

I. Change in Quantity Demanded A movement from one point on a fixed Demand Curve to another point DUE TO A CHANGE IN PRICE. Price of Cereal

P

$3

1. A to B is a change in quantity demand (due to a change in price)

A

B

$2

D1 o

10

20

Quantity of Cereal

Q Cereal

II. Shifts in Demand CHANGES IN DEMAND • Ceteris paribus-“all other things held constant.” • When the ceteris paribus assumption is dropped, movement no longer occurs along the Changes in price demand curve. Rather, the entire demand curve shifts. DON’T shift • A shift means that at the same prices, more people are willing and able to purchase that the curve! good.

This is a change in demand, not a change in quantity demanded 4

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10

$4

20

Price of Cereal $5

4

What if cereal makes you smarter? 3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 5

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10

$4

20

Price of Cereal $5

4

3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 6

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10

$4

20

Price of Cereal $5

4

3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 7

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10 30

$4

20 40

Price of Cereal $5

4

3

2

$3

30 50

$2

50 70

1

$1

80 100

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 8

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10 30

$4

20 40

Price of Cereal Increase in Demand Prices didn’t change but people want MORE cereal

$5

4

3

2

$3

30 50

D1

$2

50 70

1

$1

80 100

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 9

Change in Demand Price of Cereal

Demand Schedule Price

$5

Quantity Demanded

$5

10

$4

20

4

What if cereal causes baldness? 3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 10

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10

$4

20

Price of Cereal $5

4

3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 11

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10

$4

20

Price of Cereal $5

4

3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 12

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10 0

$4

20 5

Price of Cereal $5

4

3

2

$3

30 20

$2

50 30

1

$1

80 60

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 13

Change in Demand Demand Schedule Price

Quantity Demanded

$5

10 0

$4

20 5

Price of Cereal $5

Decrease in Demand Prices didn’t change but people want LESS cereal

4

3

2

$3

30 20

$2

50 30

1

$1

80 60

o

D2 10

20

30

40

50

60

Demand 70

Quantity of Cereal

80

Q 14

Change in Demand Price of Cereal

Demand Schedule Price

$5

Quantity Demanded

$5

10

$4

20

4

What if the price of MILK goes up? 3

2

$3

30

$2

50

1

$1

80

o

Demand 10

20

30

40

50

60

70

Quantity of Cereal

80

Q 15

III. What Causes a Shift in Demand? 5 Shifters (Determinants) of Demand:

1. Tastes and Preferences 2. Number of Consumers 3. Price of Related Goods 4. Income 5. Future Expectations Changes in PRICE don’t shift the curve. It only causes movement along the curve.

16

A. Prices of Related Goods The demand curve for one good can be affected by a change in the price of ANOTHER related good.

1. Substitutes are goods used in place of one another. – If the price of one increases, the demand for the other will increase (or vice versa) – Ex: If price of Pepsi falls, demand for coke will…

2. Complements are two goods that are bought and used together. – If the price of one increase, the demand for the other will fall. (or vice versa) – Ex: If price of skis falls, demand for ski boots will... 17

B. Consumer Income The incomes of consumer change the demand, but how depends on the type of good. 1. Normal Goods – As income increases, demand increases – As income falls, demand falls – Ex: Luxury cars, Sea Food, jewelry, homes 2. Inferior Goods – As income increases, demand falls – As income falls, demand increases – Ex: Top Ramen, used cars, used clothes,

18

Change in Qd vs. Change in Demand Price of Cereal

P

$3

There are two ways to increase quantity from 10 to 20

A

C

B

$2

1. A to B is a change in quantity demand (due to a change in price) 2. A to C is a change in demand (shift in the curve) D2

D1 o

10

20

Quantity of Cereal

Q Cereal

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter

Increase or Decrease

Left or Right

1 2 3

4 5 6 7 8 20

Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease Hamburgers (a normal good) 1. Population boom 2. Incomes fall due to recession 3. Price for Carne Asada burritos falls to $1 4. Price increases to $5 for hamburgers 5. New health craze- “No ground beef” 6. Hamburger restaurants announce that they will significantly increase prices NEXT month 7. Government heavily taxes shake and fries causes their prices to quadruple. 8. Restaurants lower price of burgers to $.50 21

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