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Normal vs. Inferior Goods
Income Effect:1.Normal Goods – goods we demand more of when our incomes rise.2.Inferior Products – goods that consumers buy less when our incomes rise.
Similar to substitute goods (used in place of each other) - high gas prices - Drive vs. ride bus
Energy Drinks & Tacos
•Work is small groups to brainstorm other factors besides price that determines whether you are WILLING and ABLE to purchase a particular good or service.
Answers
•Substitute/complimentary goods•Income•Taste & preferences•Changes in the size or composition of the
population•Changes in expectations
Question
•How might the demand for energy drinks change if the student population of the school increases dramatically?
•How might the demand for energy drinks change if another vending machine that offered soft drinks was available?
Demand vs. Quantity Demanded•Change in QD is a change in PRICE only!
(data or story does not change – movement along the line)
•TODAY – changes in DEMAND not QD!•A change in demand is a change in one of
the determinants of demand.
DETERMINANTS OF DEMANDChanges in income (normal & inferior
goods – new vs. used car)
Changes in the prices of related goods Substitutes: goods that can replace one
another (dial-up internet vs. high speed) Compliments: goods that are consumed
together
Changes in the size or composition of the population
Change in price expectations
Changes in tastes/preferences
What does this mean?
•If these factors change the willingness and ability of consumers to purchase a good or service, then this will cause a change in the demand schedule….which creates a whole new demand curve (a whole new picture)
•Not all determinants influence the same way.
•BOTTOM LINE….there will be a new demand curve!
Practice Problem #1
What would happen to the demand of pizza if you find out pizza causes heart disease? • Determinant?• Increase or decrease in demand?
Answer to Practice Problem #1
What would happen to the demand for pizza if you find out that pizza causes heart disease?
• Determinant - A change in consumer tastes/preferences; consumer expectations
• Decrease in demand
Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
• Determinant?• Increase or decrease in demand?
Answer to Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
•Determinant – A change in consumer
tastes/preferences•Increase in demand
Practice Problem #3
•A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
•Determinant?•Increase or decrease in demand of Red
Bull?
Answer to Practice Problem #3
•A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
•Determinant – A related good (substitute)•Decrease in demand of Red Bull
Practice Problem # 4
•Student allowances and the minimum wage for work increases.
•Determinant?•Increase or decrease in demand of video
games?
Practice Problem # 4
•Student allowances and the minimum wage for work increases.
•Determinant – Income increase•Increase in demand of video games
Movement Along a Demand Curve Versus a Shift of the Curve
• Remember there is a difference between quantity demanded and demand.
• Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether.
• A change in price creates a change in the quantity demanded, other things constant. ▫ This causes a movement along the demand curve.
• A change in one of the determinants of demand causes a change in demand.▫ This causes in a shift of a demand curve. Or a new
curve.
Determinants Increasing Demand•Increases in income•Increases in population•Increase in prices of substitute goods•Decrease in price of complement goods•Consumer expectation that prices will
increase in the future•Improvement in taste•Increased consumer preferences
Determinants of increased demand change the story….. How so?
Quantity demanded of pizza per week (by millions)
Price of pizza
15 $15.00
20 $12.00
25 $9.00
30 $6.00
35 $3.00
--- $0.00
Quantity demanded of pizza per week (by millions)
Price of pizza
9 $15.00
14 $12.00
19 $9.00
25 $6.00
30 $3.00
--- $0.00
Original Story New Story
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
How would determinants of increased demand change the picture of demand?
b
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
Increased Market Demand for Pizza
D2
fb
Determinants Decreasing Demand•Decreases in income•Decreases in population•Decrease in prices of substitute goods•Increase in price of complement goods•Consumer expectation that prices will
decrease in the future•Deterioration of taste•Decreased consumer preferences
Determinants of decreased demand change the story….. How so?
Quantity demanded of pizza per week (by millions)
Price of pizza
5 $15.00
10 $12.00
15 $9.00
20 $6.00
25 $3.00
--- $0.00
Quantity demanded of pizza per week (by millions)
Price of pizza
9 $15.00
14 $12.00
19 $9.00
25 $6.00
30 $3.00
--- $0.00
Original Story New Story
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
How would determinants of decreased demand change the picture of demand?
b