Factors Affecting Demand 21.2

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What factors cause market demand to change?

• The factors that affect demand are population of an area, consumers taste, their expectations, and their income.

What does it mean when the demand curve shifts to the right?

• When the demand curve shifts to the right it means that demand for that product or service has INCREASED at all prices.

What does it mean when the demand curve shifts to the left?

• When the demand curve shifts to the left it means that demand has DECREASED at all prices.

Identify and Describe ….the causes of demand shifts.

• Change in POPULATION: – The number of people in an area.– Population will increase when more people

move into an area or are born in an area. This will cause demand to increase because there are more people.

– Population will decrease when people move out of an area or die in that area. This will cause demand to decrease because there are less people.

Identify and Describe ….the causes of demand shifts

• Change in INCOME:– Money people make from working.– When people get a raise, get a job, or get a

better job they will make more money. This will cause demand to increase because they people can purchase more.

– When people lose their job or get a pay cut they have less money to spend. This will cause a decrease in demand.

Identify and Describe ….the causes of demand shifts

• Change in TASTE:– Taste is the popularity of a good or service.– When and item is popular the demand for it

will increase.– When an item becomes old news or less

popular the demand for it will decrease.

Identify and Describe ….the causes of demand shifts

• Change in EXPECTATIONS:– Expectations are they way people think about the

future.– If people expect a new product to come out demand

for the old product will decrease because they are waiting to buy the new one.

– If people expect their will be a shortage of a product the demand will increase because they want to stock up.

– If people are worried about the economy they will hold onto their money so demand will decrease because they are buying less.

What two factors about the products themselves can influence

a change in demand?

• Demand for a product can be influenced by the price and quality of related/similar goods.

• Example: demand for Ford products will change when Chevrolet comes out with a better truck or has a sale!

What is the difference between substitutes and complements?

• A substitute is used in place of another product.

• A complement is used with another product.

Examples:

• What are some examples of substitutes? – An example of a

substitute would be juice boxes instead of soda.

– Another example would be using butter instead of margarine.

• What are some examples of complements?– An example of a

complement would be a TV remote and batteries.

– Another example would be a lamp and a light bulb.

Changes in Price:

• How does a change in price of substitute affect the demand of the other product?– If the price of a product

goes up the demand for its substitute will go up.

– If the price of butter goes up the demand for margarine will go up.

• How does a change in the price of a complement affect the demand of the other product?– If the price of a product goes

up the demand for its complement will go down.

– If the price of a DVD player goes up the demand for DVDs will go down.

What is the only factor that can directly cause a change in the

quantity of a good?

• The only factor that can directly change the demand for a good is its own price!

Define Demand Elasticity

• Demand elasticity is how much a change in the price of a product will change the demand for that product.

How do substitutes affect demand elasticity?

• If there are substitutes for a product then the demand will be elastic.

• If there aren’t substitutes then demand inelastic!!

• This means that when the price of one goes up people will buy less of it and simply buy the substitute.

What does it mean if the demand for a good or service in inelastic?

• If demand for a good is inelastic that means that when the price goes up or down people are going to demand the same amount.

• Can you think of any examples of this?– An example would be

electricity for your home.

– Another example could be gas for your car.

Demand for necessities is…

• Inelastic– You need these items so when the price goes

up you will still need to buy them .

Demand for luxuries is…

• Elastic– You don’t have to have them so when the

price goes up you will buy less.