Transcript How Markets Work A Change in Demand A Change in Demand

How Markets Work
A Change in Demand
A Change in Demand
• When a factor that affects the buying plan
other than the price of the good changes ,
there is a change in demand.
• Increase in demand means movement of the
demand curve to the right and quantity
demanded increases at each price.
• Decrease in demand means movement of the
demand curve to the left and quantity
demanded decreases at each price.
Increase & Decrease of the Demand Curve
Increase in Demand
P
Decrease in Demand
P
Q
Q
Factors bring Changes in Demand
1. The Prices of Related Goods:
The related goods are:
Substitutes &Complement.
A substitute is a good that can be used in
place of another one. There is positive
relationship between the price of a substitute
and the demand for the good. If the price of
tea rises the demand for coffee increases and
vise versa.
Factors bring Changes in Demand
A complement is a good is used with
another one to satisfy the same needs.
There is negative relationship between the
price of a complement and the demand for
the good. If the price of sugar rises the
demand for tea decreases and vise versa.
Factors bring Changes in Demand
2. Expected Future Prices:
If the price of a good is expected to rise in
the future , and if the good can be stored ,
the demand for the good increases today
and vise versa. Examples.
Factors bring Changes in Demand
3. Income: Consumers’ income influences demand.
• When income increases , consumers buy more of
most goods and when income decreases ,
consumers buy less of most goods.
• The positive relationship between income and
demand for the good is true for most goods, they
are the normal goods. But the relationship
between income and demand for the good is
negative for few goods; the inferior goods.
• Example: air travel and long – distance bus trips.
Factors bring Changes in Demand
4. Expected Future Income & Credit:
When income is expected to increase in the
future . Or when credit is easy to obtain , the
demand might increase now. Example.
5. Population :
Demand depends on the size and the age
structure of the population .
The larger the population ,the greater the
demand for all goods and services and vise
versa.
Factors bring Changes in Demand
• Also ,the larger the proportion of the
population in a given age group , the greater
is the demand for the goods and services
used by that group. Example.
6. Preferences:
Demand depends on preferences .
Preferences determine the value that
people place on each good and service.
Preferences are affected by things such as
weather , information and fashion.
A change in the quantity demanded
• A change in the quantity demanded =
movement along the demand curve
• If the price of the good changes, but no other
influence on buying plans changes, that
means we have movement along the
demand curve ; there is a change in the
quantity demanded as price changes.
• Examples:
A Change in Demand
• If the price of a good remains constant ,but some
other influence on buyers’ plans changes, there is
a change in the demand of the good.
A Change in Demand =A Shift of the Demand Curve
Examples:
Table 3.1 p.62
• It summarizes what we have studied.
• The law of demand
• The change in the quantity demanded due to
the changes in the price of the good.
• Changes in demand happen as a result of the
change in the other factors except the price
of the good .