Change in D vs. Change in Q d

1. Change in D vs. Change in Qd • Change in Quantity Demanded - a change in the desire or means to purchase the good, thus there is a change in quantity demanded at EVERY price. (Price Effect) • Change in Demand - a shift of the demand curve

2. Change in D vs. Change in Qd • Changes in Demand • Increase in demand - demand curve shifts to the right • Decrease in demand - demand curve shifts to the left

3. Change in Demand • Factors Which Cause a Change in Demand • Consumer Income • Price of Related Goods • Number & Composition of Buyers • Consumer Expectations about Future Prices • Consumer Tastes and Preferences

4. Change in Demand - Income • If you graduate from college and start making a substantial income - What might happen to the amount of CDs you would want to buy? • It would increase! You would be willing and able to purchase more CDs at every price. • Thus, demand has increased.

5. Change in Demand - Income • If after a year at your new job the boss cuts salaries by 30%. What happens to Demand? • It would decrease. • You are now have less means to purchase CDs at all prices.

6. Normal and Inferior Goods • Given the information we have, CDs are a “normal good” • Normal Good- any good which increases in demand as income increases (and vice-versa) • Most goods are normal • Inferior Good- any good which decreases in demand as income increases (and vice-versa) • Ex. - Macaroni and Cheese

7. Change in Demand - Price of Related Goods • Substitute - a good which can be consumed in place of another good • What would happen to the demand for pizza if the price of hamburgers fell? • The demand for pizza would probably fallsince people would be buying hamburgers instead.

8. Change in Demand - Price of Related Goods • Complement- a good which is consumed along with the consumption of another good • Ex - Peanut Butter and Jelly are complements. • If price of peanut butter increases, consumers purchase less peanut butter • Result Consumers purchase less jelly • Since people buy less peanut butter they need less jelly for PB&J sandwiches

9. Change in Demand - Price of Related Goods • Thus, either of the following will increase Demand • Price of a substitute good increases • Price of a complement good decreases • And either of the following will decrease Demand • Price of a substitute good decreases • Price of a complement good increases

10. Change in Demand – Number of Buyers The more buyers in the market for a good, the greater the TOTAL quantity demanded (by the whole economy) of the good at a given price. Since the quantity demanded is higher at EVERY given price, the demand has increased. Likewise, if there are less buyers in the market there is less quantity demanded at every price, so demand has decreased.

11. Change in Demand - Expectations about Future Prices • If we were to hear a new story about how CD prices were going to go up next month, would you buy that CD you have had your eye on now or later? • Now. If you know prices will rise, you will want to buy more now, so you can avoid paying the higher price in the future. • So demand will increase in response to this information

12. Change in Demand - Expectations about Future Prices • Likewise, if we hear that CD prices are going to drop next month, what do we do now? • It is likely that we will buy less now, waiting to buy that new CD until the prices fall next month, thus demand will decrease.

13. Change in Demand - Tastes and Preferences • Let’s say we find out listening to CDs can improve your hearing, or what if suddenly CDs become very fashionable to buy? If consumers prefer more of a good, the demand for the good increases (a rightward shift of the demand curve). • What if we find out CDs emit dangerous radiation? If consumers prefer a good less, the demand for the good decreases (a leftward shift of the demand curve).