Transcript Shift in Demand Curve - The Ohio State University

ECONOMICS 200
PRINCIPLES OF MICROECONOMICS
Professor Lucia F. Dunn
Department of Economics
1
THREE WAYS TO
REPRESENT DEMAND
• 1. A SCHEDULE
• 2. A GRAPH
• 3. AN EQUATION OR FUNCTION
2
Demand Schedule
Let’s consider the demand schedule for beer at OSU.
P ($ per pack)
$
50
1.
00
2.
50
2.
00
3.
50
3.
QD (per month)
180*
150
115
70
50
* Units of thousands of six-packs.
Please note that these do not represent actual combinations of prices
and quantities bought, but only consumer assessments of what they
would do when confronted with different prices per beer.
3
Demand Curve
Now, the information in the table of the beer demand schedule
translates directly into a demand curve.
4.00
3.50
Demand Curve
P ($/pack)
3.00
2.50
2.00
1.50
1.00
0.50
0.00
0
50
100
150
200
Q (packs)
4
Demand Equation
• Q = f (P)
• Q is the “dependent variable”
• P is the “independent variable”
• Supply and Demand Curves
are plotted “backwards”.
5
Change in Quantity Demanded
If we have a change in the price of the beer, whose demand we are
examining, we will just get a movement along the single fixed demand.
p
p2
p1
D
Q2
Q1
QBeer
We call this change a change in quantity demanded.
6
Shift in Demand Curve
Any particular quantity figure that we read off this curve would be
called a quantity demanded of beer.
The entire curve is referred to simply as demand.
Demand is usually considered a function of its own price, ceteris paribus.
(Latin for “other things equal” or “other things constant”.)
Actually,
QD 
f ( p, x, y, z ,   )
If one of the other variables changes, the way we would represent this on a
2-dimensional graph would be by “shift” of the entire demand curve.
7
Shift in Demand Curve (1)
Look at the demand curve for beer when there is a rise in price of wine.
We would expect to see the entire demand curve for beer shift to the right.
p

p
D2
D1
Q1
Q2
QBeer
This means that at any price, people would now be demanding more beer: Q1  Q2
8
Shift in Demand Curve (2)
If a depression like we had in 1930’s should suddenly set in, so that there
was a 25% drop in the average income in the country, then we would expect
the demand for beer and a lot of other things to move to the left as long as
they are normal commodities.
p

p
D2
Q2
Q1
D1
QD
Now, with people poorer, at every price the demand for commodities should be lower.
9
Distinction between:
Change in Quantity Demanded & Change in Quantity
• Change in quantity demanded is a
movement along a single demand curve
-results from a change in price.
Change in demand is a shift of the entire
demand curve
- results from a change in a ceteris
paribus factor.
10
Change in Demand
Ceteris Paribus Factors
1. Average Household Income
2. Prices of Related Products
(a) Substitutes
(b) Complements
3. Tastes + Preferences
4. Distribution of Income
5. Population
6. Expectation about the Future
11
Shift in Demand Curve (1)
Factor 1: Change in Average Household Income
e.g. If a depression like we had in 1930’s should suddenly set in, so that
there was a 25% drop in the average income in the country, then we would
expect the demand for beer and a lot of other things to move to the left as
long as they are normal commodities.
p

p
D2
Q2
Q1
D1
QD
Now, with people poorer, at every price the demand for commodities should be lower.
12
Change in Average Household Income (ct’d)
Two Possibilities
Possibility 1: Normal Commodities
When income goes up, demand increases and vice
versa.
Possibility 2: Inferior Commodities
When income goes up, demand decreases and vice
versa.
e.g. Hamburger Helper
13
Shift in Demand Curve (2)
Factor 2: Change in the Price of Related Commodities
A. Substitutes: Consumed instead of one another
Example: Wine and Beer
Price of wine increases => Demand for beer increases
p

p
D2
D1
Q1
Q2
QBeer
This means that at any price, people would now be demanding more beer: Q1  Q2
14
Change in the Price of Related Commodities (ct’d)
B. Complements: Consumed together
Example: Coffee and sugar
Price of sugar increases => Demand for coffee decreases
p

p
D1
D2
Q2
Q1
Qcoffee
15
Change in Demand
Ceteris Paribus Factors
1. Average Household Income
2. Prices of Related Products
(a) Substitutes
(b) Complements
3. Tastes + Preferences
4. Distribution of Income
5. Population
6. Expectation about the Future
16
17