4-2 Changes in Demand

Demand Review

The Law of Demand states that people will buy more of something at lower prices than they will at higher prices, ceteris paribus. In looking at the demand for apples, the ceteris paribus assumption means that that the only thing that is changing is the price of apples. Remember, the only thing that cannot cause a change in demand for apples is a change in the price of apples.

What is a Change in Demand

A change in demand is when people want to buy more or less of something than before at all prices. The price of the product is not changing, but something else is.

AN INCREASE IN DEMAND

Price 25 cents 50 cents 75 cents $1.00

Original Demand New Demand 10 18 7 4 2 12 8 6

What Can Cause a Change in Demand?

1. A Change in Income

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A higher income usually means a greater demand for goods and services. >People with higher incomes buy more normal goods (upscale restaurants, designer clothes, luxury cars)

•

A lower income usually means a less demand for goods and services. >People with lower incomes buy more inferior goods (ramen, dollar menu fast food, cheap clothing)

What Can Cause a Change in Demand?

2. A Change in Tastes & Preferences Styles Change & Fads Come and Go

What Can Cause a Change in Demand?

2. A Change in Tastes & Preferences

Advertising Plays a Big Role in Creating Demand

What Can Cause a Change in Demand?

3. A Change in Expectations

• If you think the future looks bright, you are more likely to spend money more freely now. • Another way expectations works is when you think that something you really want is going to sell out, you are more likely to buy today.

What Can Cause a Change in Demand?

3. A Change in Expectations

• If you are worried about the future, you are more likely to hold off big purchases and spend less money in general. • What you think about future prices has an impact on demand today. If you think prices will be lower in the future you delay buying some things now .

What Can Cause a Change in Demand?

4. A Change in the Number of Buyers (Sometimes called A Change in Population) • As the population of the U.S. ages, more health care & retirement homes are in demand. • As the number of immigrants moving to Houston from around the world has increased, the demand for ethnic foods has increased .

What Can Cause a Change in Demand?

5. A Change in the Price or Availability of a Substitute When a cheaper generic version of acetaminophen became available, demand for the name brand Tylenol dropped dramatically.

What Can Cause a Change in Demand?

5. A Change in the Price or Availability of a Substitute When fresh pineapples are unavailable, the demand for canned pineapple will likely increase .

What Can Cause a Change in Demand?

6. A Change in the Price or Availability of a Complementary Good

Complementary goods are items that are typically bought and used together. Good Hot Dogs Charcoal Ice Cream Complement Hot Dog Buns Lighter Fluid Cones

The demand for hot dog buns will decrease when a store sells out of hot dogs.

A decrease in the price of ice cream will increase the demand for cones.

Graphing Changes in Demand Price

$40 $60 $80 $100

Original Q

100 70 40 10

New Q

180 110 80 30

An increase in demand for oil shifts the demand curve to the right. Buyers now want to buy more oil than before at all prices.

Graphing Changes in Demand Price

$5 $10 $15 $20

Original Q

18 11 8 3

New Q

10 7 4 1

A decrease in the demand for DVDs shifts the demand curve to the left. Buyers now want to buy fewer DVDs than before at all prices .