chapter 4, section 2. there are a lot of reasons why demand for an item increases or decreases… ...
TRANSCRIPT
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Factors Affecting DemandChapter 4, Section 2
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Changing Demand
There are a lot of reasons why demand for an item increases or decreases…
Price is one easy way to affect demand, but there are others…
In the case of a fad, it might be that consumer tastes are changing
In the case of homes, it might be the closing of a big factory in a town, or the opening of a new hospital
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How/why does price impact demand?
• Two main reasons:
• Income effect – the change in the amount that consumers will buy because the purchasing power of their income changes.
• Substitution effect – a change in the amount that consumers will buy because they buy substitute goods instead.
•These cause a…
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Change in Quantity Demanded
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1 2 3 4 5 6 7Quantity Demanded of DVDsA change in quantity demanded is an increase or
decrease in the amount demanded because of a change in price.
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6 Factors that Affect Demand• 1. Income – Increases in income increase demand for most goods, while decreases in income decrease demand for most goods.• Goods that follow this pattern are considered normal goods.
• Good that consumers demand less of as their incomes rise are considered inferior goods.
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6 Factors that Affect Demand• 2. Market Size – If the number of consumers increases, so will demand. If the number of consumers decreases, so will demand.
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6 Factors that Affect Demand• 3. Consumer Tastes – If a good becomes more popular, demand will rise. If a good loses popularity, demand will fall.
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6 Factors that Affect Demand• 4. Consumer Expectations – If you think the price of a good may change, that expectation can determine whether you buy now or wait until later.
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6 Factors that Affect Demand• 5. Substitute goods – •Goods and services that can be used in place of one another are called substitutes.• If the price of a substitute drops, more people will choose to buy it instead of the original item. Demand for the substitute will increase as demand for the original item decreases. • If the price of the substitute rises, more people will choose to buy the original item and demand for it will increase.
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6 Factors that Affect Demand• 5. Substitute goods –
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6 Factors that Affect Demand• 6. Complementary goods –• Goods and services that are used together, so a rise in demand for one increases the demand for the other.
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Change in Demand (ex. Peters loses his job.)
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1 2 3 4 5 6 7Quantity Demanded of DVDsA change in demand occurs when something prompts
consumers to buy different amounts at every price.
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Change in Demand (ex. Peters gets a promotion.)
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1 2 3 4 5 6 7Quantity Demanded of DVDsA change in demand occurs when something prompts
consumers to buy different amounts at every price.
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Change in Demand or Quantity Demanded?
Change in Demand:
Change in 1 of the 6 factors that affect demand
A SHIFT of the entire curve to the - - Left – decrease in
demand Right – increase in
demand
Change in Quantity Demanded:
Change in price
Movement ALONG the demand curve