Transcript Chapter 20.2

Chapter 20.2
Factors Affecting Demand
Changes in Demand
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Market demand can change when more
consumers enter the market; when
incomes, tastes and expectations change;
and when prices of related goods change.
continued
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A graph of a market demand curve can
show these changes. When demand goes
down, people are willing to buy fewer items
at all possible prices. In this case, the
curve shifts to the left. When demand goes
up, the curve shifts to the right. People are
willing to buy more of the item at any given
price.
continued
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Demand is related to the number of
consumers in the area. When more people
move into an area, they buy more goods
and services from local businesses. As a
result, the demand curve shifts to the right.
When many people move away, demand
for goods and services in the area
decreases. The demand curve shifts to the
left.
continued
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Income changes also affect demand.
When the economy is healthy, people
receive raises or move to better-paying
jobs. With more to spend, they are willing
to buy more of a product at any particular
price. In hard times, people lose their jobs.
With less income, they buy less and
demand goes down.
continued
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Consumers’ tastes change. When a
product is popular, the demand curve shifts
to the right. When its popularity fades,
demand decreases and the curve shifts to
the left.
Expectations affect demand. If people
believe hard times are on the way, they will
buy less. If people expect shortages of
something, demand increases.
continued
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Competing products are called substitutes
because consumers can use one in place
of the other. A change in the price of one
good causes the demand for its substitute
to move in the same direction.
Complements are products that are used
together. The demand for one moves in
the opposite direction as the price of the
other.
Elasticity of Demand
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When price rises, we know that quantity
demanded will go down, but we don’t know by
how much. Demand elasticity is the extent to
which a change in price causes a change in the
quantity demanded for a product.
For some goods and services, demand is elastic.
Each change in price causes a relatively larger
percentage change in quantity demanded. That
is, when the price of product changes a little, the
quantity demanded changes a lot.
continued
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Demand for a good or service tends to be elastic
if it has an attractive substitute. Demand also
tends to be elastic when the purchase can be
postponed.
For other goods and services, demand is
inelastic. Price changes have little effect on the
quantity demanded.
Demand for goods with few or not substitutes
tends to be inelastic.