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Changes in Demand- “Shifts”

Changes in Demand- “Shifts” . Warm up: Describe the Law of Demand, include the substitution effect and income effect in the description. Changes in Demand . Demand Shifts : Time allows factors other than price to influence demand significantly.

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Changes in Demand- “Shifts”

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  1. Changes in Demand- “Shifts” Warm up: Describe the Law of Demand, include the substitution effect and income effect in the description.

  2. Changes in Demand • Demand Shifts: Time allows factors other than price to influence demand significantly. • In Economics these factors can shift the entire demand curve of a product to the right or to the left.

  3. Changes in Demand • Determinants of Demand—Factors that can cause the entire demand curve to shift to either the right or left. • Consumer tastes and preferences • Market size • Income • Prices of related goods • Consumer expectations

  4. Determinants of Demand • Consumer Tastes and Preferences: ex. Changes in music preferences • If a groups popularity rises—demand curve shifts to the right • If a groups popularity declines—demand curve shifts to the left.

  5. Determinants of Demand • Market Size—The size of a market tend to affect demand. • Markets expand and contract • Nike launches new advertising campaign for its SHOX running shoes. • If successful, curve shifts to right

  6. Determinants of Demand • Government Policy can affect size of markets—China trade policy example • New Technology can affect market size • Ex. Invention of video and internet cell phones • Old cell phone technology—demand curve shifts to the left. • New video technology—demand curve shifts to the right.

  7. Determinants of Demand • Income—Higher incomes generally allows people to spend more money for goods and services which causes the demand curve to shift to the right.

  8. Determinants of Demand • Prices of Related Goods—A change in a products price can affect demand for the products related goods. • Ex. Butter/Margarine—Margarine is substituted for butter when price of butter goes up. • Complementary Goods—Goods that are commonly used with other goods. • Ex. Paint / Paintbrushes • Price of paint increases—demand for paint and paintbrushes decreases

  9. Determinants of Demand • Consumer Expectations—Your expectations for more future income influences your purchases today. • Ex. Anticipate a raise in your salary OR • If you anticipate being laid off !

  10. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? Price • Price of Artificial Sweetener Increases—what happens to sugar demand? Quantity

  11. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? Price • 1950’s Musicals become “the rage” among 15-20 year olds. Show what might happen to DVD Sales in this category. Quantity

  12. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? Price • The government does a retroactive tax cut accompanied by a $1500 rebate check for everyone over 18. What happens to demand for movie tickets? Quantity

  13. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? Price • Detroit—a rumor spreads that GM is insolvent (doesn’t have sufficient money) and will have to close down 80% of its plants. What happens to demand for work shoes? Quantity

  14. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? Price • The price of motor oil for automobiles becomes 10x more expensive. What happens to demand for gasoline? Quantity

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