several factors will cause the quantity demanded at every price to change quantity price demanded $4...

Several factors will cause the quantity demanded at every price to change

Quantity Price Demanded

$4 1

$3 2

$2 3

$1 4

3

4

5

6

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Quantity Demanded1 2 3 4

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Demand Curve

The Demand Curve Shifts

The Demand Curve Shifts

What Causes the Demand Curve to Shift?

• Five factors cause the demand curve to shift

• TINER!

• Changes in tastes or preferences • Change in income

• Change in the number of buyers in the market

• Change in expectations of future price

• Change in the price of related goods

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1. Tastes or Preferences

1. Tastes or Preferences

Description:

• A change in preferences in favor of a good shifts the demand curve to the right.

• A change in preferences away from a good shifts the demand curve to the left

2. IncomeDescription:

• As income changes, people may buy more or less of a particular good—BUT it depends on the type of good it is

As it turns out, those were the droids you were looking for.

Change in Income Cont.Suppose you got fired—what will happen to

your consumption of these?

• Normal goods are goods for which the demand rises as income rises and falls as income falls

Change in Income Cont.Suppose you got fired—what will happen to your

consumption of these?

• Inferior goods are goods for which the demand falls as income rises and rises as income falls

Change in Income Cont.Suppose you got fired—what will happen to your

consumption of these?

• Neutral goods are goods for which the demand remains unchanged as income rises or falls

3. Number of Buyers in the market

• The demand for a good in a particular market area is related to the number of buyers in the area

Description:

• The more buyers, the higher the demand

• The fewer buyers, the lower the demand

4. Expectations of Future Price

4. Expectations of Future Price

Description:

• Buyers who expect the price of a good to be higher in the future may buy the good NOW, thus increasing the current demand

• Buyers who expect the price of a good to be lower in the future may WAIT until the future to buy the good, thus decreasing the current demand for the good

5. Prices of Related Goods

Demand for goods is affected by the prices of related goods

• Substitutes are similar goods. • With substitutes, the price of one and the

demand for the other move in the same direction

• P of Donuts demand for Danishes

• P of apples demand for oranges

5. Prices of Related Goods

Demand for goods is affected by the prices of related goods

• Complements are goods that are consumed jointly with another good.• With complements, the price of one and the

demand for the other move in opposite directions

• P of peanut butter demand for jelly

• P of hot dogs demand for hot dog buns