Shifts in the Demand Curve P

RIC

E

QUANTITY

Ceteris Paribus

Latin phrase for “all other things held constant”

The demand schedule takes only changes in price into account. It does not take news accounts, ads, weather, or any other factors into account.

Normal Good

A good that consumers demand more of when their incomes increase.

Because Mr. Fulk got a raise, he started buying more McChickens on his way home.

Inferior Good

A good that consumers demand less of when their incomes increase

Because Mr. Fulk got a raise he was able to buy Real Coca-Cola instead of Kroger brand cola.

Complements

Two goods that are bought and used together

Mr. Fulk loves hamburgers but he is not on an Adkins diet. Therefore when he buys hamburgers he can not forget the buns!

* Just don’t eat the last bite!

Substitutes

Goods used in place of one another.

If the price of snowboards goes up Mr. Fulk will just have to go and buy skis instead!

Changes in demand

A demand curve is accurate as long as there are no changes other than price that could affect the consumer’s decision. So as long as all things hold constant (ceteris paribus), then a demand curve will is accurate.

When we move along the curve we refer to this as a change in quantity demanded.

What causes a shift in the demand curve?

The change in the price does NOT cause the demand curve to shift. These changes are already built into the demand curve.

Income – when you make more, you spend more

Consumer Expectations – Haja said buy gas or else!

Population – more people, more demand

Consumer tastes and advertising – who knew telling people your every move would be so important?

What is an example of an inferior good?

When Mr. Fulk was a broke college student Mr. and Mrs. Fulk only bought Big K instead of Coke. Mr. and Mrs. Fulk also shared a meal at P.F. Changs to save money. Now, Mrs. Fulk gets her own plate…and if she is a member of the clean plate club she just might get some dessert.

What is one good that can be considered a complement for

another?

Hot dogs and buns

Skis and boots

What others do you have?

What are two goods that can be considered substitutes?

Skis vs. snowboards

A cab vs. a bus

What others can you come up with?

What is the difference between a shift along a

demand curve and a shift of a demand curve?

A shift along the demand curve is caused by a change in price.

A shift of a demand curve is caused by factors other than a change in price that lead to a change in demand.

A computer manufacturer lowers its prices. (computers)

PR

ICE

QUANTITY

A change in price will mean just a shift along the

demand curve.

Lower price = more demand

A volleyball maker convinces high schools to fund varsity volleyball

teams. (volleyballs) P

RIC

E

QUANTITY

A change other than price will cause a shift of a curve.

A freeze ruins the orange crop, and orange juice prices rise.

(apple juice) P

RIC

E

QUANTITY

A change other than price will cause a shift of a curve.

What would happen to the demand curve for OJ?