SHIFTS IN DEMAND

Mr. Barnett

University High

2012-2013

AP Microeconomics

Demand – schedule of quantities of goods or services that will be purchased at various prices, at a specified time, all other things held constant Those “things” being held constant are the determinants of

demand Number of consumers Income normal goods Income inferior goods Consumer tastes and preferences Prices of related products – Substitutes Prices of related products – Complements Expected future prices by consumer Expected future income by consumer

As we all know, the demand of goods or services change over time

These changes cause shifts in the demand curve An increase in demand is shown by a shift to the right A decrease in demand is shown by a shift to the left

EQUILIBRIUM If we put up a supply and demand curve at the

same time … Equilibrium – when market price has reached

level where quantity supplied equals quantity demanded

Equilibrium price – price where quantity supplied meets quantity demanded

Equilibrium quantity – quantity supplied and quantity demanded at the equilibrium price

Shifts in curves will change equilibrium price/quantity

NUMBER OF CONSUMERS

Can change because of various reasons Population

If 5 new families move into your neighborhood

If the local school begins classes

Weather An incredibly hot September

A extremely cold November

INCOME NORMAL GOODS

Number of consumers increases Shift right

Number of consumers decreases Shift left

INCOME NORMAL GOODS

Normal good – a good where an increase in income leads to an increase in demand

Inferior good – a good where an increase in income leads to a decrease in demand

As people’s incomes increase, they tend to buy more normal goods As people’s incomes decrease, they tend to buy more inferior

goods

INCOME NORMAL GOODS

Increase in income - impact on normal goods Shift right

Decrease in income – impact on normal goods Shift left

Increase in income – impact on inferior goods Shift left

Decrease in income – impact on normal goods Shift right

PREFERENCES & TASTES

When consumers have a change in preference or tastes, the demand for the good changes accordingly Oprah’s book club Medical studies

PREFERENCES AND TASTES

Increase in preference Shift right

Decrease in preference Shift left

SUBSTITUTES Prices of related products –

Substitutes As price of product x rises, its quantity

demanded decreases Demand for product y increases

As price of product x falls, its quantity demanded increases

Demand for product y decreases

SUBSTITUTES Prices of related products –

Complements As price of product x rises, its quantity

demanded decreases Demand for product y decreases as well

As price of product x falls, its quantity demanded increases

Demand for product y increases as well

SUBSTITUTES Expected future prices by consumer

If people expect prices to go up, demand _____ Increases; shift to the right

If people expect prices to go down, demand _____ Decreases; shift to the left

Expected future income by consumer If people expect their income to go up, demand _____

Increases; shift to the right

If people expect their future income to go down, demand _____ Decreases; shift to the left