Demand 3 - Determinants of Demand (non-price) also known as Shifters of Demand

Determinants of Demand/ Shifters of Demand

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The shift of the demand curve means the quantity demanded changes at every price level. Factors resulting in a shift of the demand curve are non-price factors of the good.  (or shifting happens with factors other than price.

Shifters of Demand

1. Numbers of Consumers (size of the market)
2. Income Normal Goods
3. Income Inferior Goods
4. Preferences 
5. Prices of Related Products:  Substitutes
6. Prices of Related Products: Complements
7. Expected Future Prices by Consumers
8. Expected Future Income by Consumers

Mjmfoodie doing it well:

1. Numbers of Consumers (size of the market)

Changes in the size of a market (the number of consumers) will have an effect. As the size of a market increases, demand for most products will tend to rise. As the size of the markets decreases, demand for most products will tend to rise.

Population Increase - energy and water

http://www.dailymotion.com/video/xa9tlx_population-increase-energy-and-wate_news

Population - http://www.econlib.org/library/Enc/Population.html

2. Income - Normal Goods

When income increases, the demand for normal goods will increase - shifts demand to the right

When income decreases, the demand for normal goods will decrease - shifts demand to the left

1995 AP Microeconomics Exam

Answer - (D) a normal good

2008 AP Microeconomics Exam

Answer - (B) reinforces the income effect

3. Income - Inferior Goods

When  income increases, the demand for inferior goods will decrease.

When income decreases, the demand for inferior goods will increase.

2000 AP Microeconomics Exam

Answer - (D) An increase in consumer income will decrease the demand for bologna.

4. Preferences 

Changes in taste and preferences affect demand. Preferences can be affected by consideration of health, weather, fashion trends, advertising etc. Ex. an increase in awareness of overweight problems will lower the demand for red meat and pastries. (Possibly)

Our preferences are influenced by all types of information. (sometimes it's difficult to know who to believe)


1995 AP Microeconomics Exam

Answer - (A) An increase in the demand for air travel. ( People's preference for flight over cars or bus travel increase the demand for aircraft mechanics.)

1995 AP Microeconomics Exam

Answer - (B)  The demand curve will shift to the left, decreasing the price of beef.

2005 AP Microeconomics Exam

Answer - (B) The price of artichokes will increase. (preference for eating artichokes will increase raising demand)

5. Prices of Related Products:  Substitutes

Substitutes exist for all of our wants and needs. Think of the products you have in your shower and the differing shampoos and soaps that exist in the grocery store. If the price of your favorite shampoo doubles you might decide to substitute a cheaper brand. 

2000 AP Microeconomics Exam

Answer (A) An increase in the price of pizza, a substitute for hamburgers.

6. Prices of Related Products: Compliments

Two goods are considered compliments if they are consumed together. Examples would include, peanut butter and jelly, toast and jam, hamburgers and french fries (chips), toothpaste and toothbrushes, coffee and sugar. 

If the price of peanut butter skyrockets then we could expect the price of jelly to fall as the increase in the price of peanut butter will cause its Qd to fall which in turn will cause the demand for jelly to fall.

2000 AP Microeconomics Exam

Answer - (D) The release of three summer movies. (In essence more movies bring more people                           to the movies and when people come to the movies they like to eat popcorn.)

1995 AP Microeconomics Exam

Answer - (E) complementary goods

2005 AP Microeconomics Exams

Answer - (B) An increase in the price of potatoes, if potatoes and beef are complementary                                  goods.

2005 AP Microeconomics Exam

Answer - (B) X & Y are complementary. (This problem is easier (for me) if I add real products for the variables X &Y. )

7. Expected Future Prices by Consumers

If you expect the price of that dress to go on sale next week you will wait until next week to buy it. If you expect that dress to increase in price next week you will usually go out and buy it now. 

Expectations are powerful incentives,,, think of the milk section before a big storm hits. 

8. Expected Future Income of Consumers

If you expect to get a big raise in the next month, or a big bonus you might choose to spend know knowing that you will be able to pay for your purchases later. 

Know these Concepts

Reffonomics - website with interactive determinants of demand.

http://www.reffonomics.com/TRB/chapter4/demand1.swf

http://www.reffonomics.com/TRB/chapter4/demandinteractivechart.swf

Welker and the Determinantes of Demand - Video

https://www.youtube.com/watch?v=FfvPwmqa_A0&src_vid=hqKOr6H_YFE&feature=iv&annotation_id=annotation_154419

Demand 2 - Why does the Demand Curve Slope Downward

Why does the Demand Curve Slope Downward

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Pajholden doing it well.

There are 3 reasons that the Demand Curve slopes downward.

1. Substitution Effect
2. Income Effect
3. Law of Diminishing Marginal Utility

Substitution Effect:

Definition - If the price of X increases then all other goods automatically become relatively cheaper                       so consumers will tend to substitute other goods in place of X.

                    (If the price of beef rises then I will switch to chicken, or pork or fish)

                    or - as the price of a good X decreases, consumers switch from other higher priced goods                            to the lower priced good X. (As the price of beef decreases I will switch from                                      chicken, pork or fish back to beef) 

Income Effect:

Definition - When the price of good X increases, consumers' real income is lowered so the quantity of                     good X they can afford is lowered. (When things get more expensive its harder to make                       ends meet)

                   or - When the price of a good decreases, the quantity demanded now increases because                               consumers now have more real income to spend. (When the price of a good                                           decreases we can buy more of it)

Law of Diminishing Marginal Utility:

Definition - As we consume additional units of something, the satisfaction (Utility) we derive for each additional unit (marginal unit) grows smaller. (diminishes).

Law of Diminishing Marginal Utility - done well by mjmfoodie

Reffonomics - Why the Demand Curve slopes down. - Interactive

http://www.reffonomics.com/TRB/chapter4/SlopeofDemandCurveFINAL1.swf

Demand 1 - Demand & Quantity Demand

Demand

Demand - definition - the willingness and the ability to purchase a quantity of a good or service at a                                       certain price over a period of time

Law of Demand - an increase in price leads to a decrease in Quantity Demand (Qd).

Introduction to Demand - by mjmfoodie.

Watch the video and then see if you can answer this AP exam question,,

2000 AP Exam Microeconomics - 

Answer - (C) In the past several months, as the price of compact disk players has decreased the quantity of compact disk players sold has increased. ( Doesn't this make sense, price goes down more is bought/sold)

* In a demand curve the price and the Quantity Demanded have an inverse relationship... 

What does that mean? 

It means that as the price of a good goes up the quantity demanded goes down. Conversely, if the price goes down the quantity demanded goes up.

Say it again,,, (Price goes up less is bought,, Price goes down more is bought.)  Simple right?

Quantity Demanded is not Demand (Say it over & Over)

Please watch the video below..

Quantity Demand is a movement up or down the curve. 

Quantity Demand is driven by a Price Change.

I'm going write this again,,, Quantity Demanded is driven by price. Look at the curve above. When a cake costs

• at $9 a cake the quantity demanded is 1 cake,
• at $8 a cake the quantity demanded is 2 cakes, 
• at $7 a cake the quantity demanded is 3 cakes,
• at $6 a cake the quantity demanded is 4 cakes,
• etc etc, all the way until at a price of $0 the quantity demanded will be 10 cakes.

All students have an issue with the difference between a movement on the curve and a shift of the curve. 

Take a moment and go to this website and play with the interactive graphics.

http://www.reffonomics.com/TRB/chapter4/quantitydemanded.swf

Always good to watch a video by Welker -