Demand Curve Shifts

Introduction

• Previous lectures: basics of the demand curve.
• Focus on what happens when the demand curve shifts due to changes in market demand.

Increase in Demand

• Definition: Demand curve shifts up and to the right.
• Example: Houseplants at $20:
  • Old Curve: 5 plants demanded.
  • New Curve: 8 plants demanded.
• Vertical Method: Greater willingness to pay for each quantity.
  • Example: Willingness to pay $32 for the fifth unit instead of $20.
• Summary:
  • Increase in demand = greater quantity demanded at every price.
  • Increase in maximum willingness to pay.

Decrease in Demand

• Definition: Shift down and to the left.
• Example: Houseplants at $20:
  • Demand falls from 5 plants to 2 plants.
• Willingness to pay decreases:
  • Example: Willing to pay only $8 for the fifth unit instead of $20.
• Summary:
  • Decrease in demand = lesser quantity demanded at every price.
  • Decrease in maximum willingness to pay.

Factors Causing Demand Shifts

1. Income

• Normal Goods: Demand increases as income increases.
  • Example: Fine dining.
• Inferior Goods: Demand decreases as income increases.
  • Example: Instant ramen.

2. Population

• Change in population affects the number of potential buyers.
  • Example: Increase in elderly population raises demand for hearing aids.

3. Tastes

• Subjective and changing.
• Impact of trends:
  • Favorable trends (e.g., low-carb diets) increase demand for certain goods (e.g., hamburgers).
  • Negative information can decrease demand (e.g., ethical concerns about production).

4. Price of Related Goods

• Substitutes: Two goods that can replace each other.
  • Example: If hot dog prices rise, demand for hamburgers increases.
  • Conversely, if hot dog prices fall, demand for hamburgers decreases.
• Complements: Goods that are used together.
  • Example: Increased prices of hamburgers decrease the demand for hamburger buns.
  • Decreased prices of hamburgers increase the demand for hamburger buns.

5. Expectations

• Expectations about future prices or events can shift demand.
  • Example: Anticipation of a holiday sale may decrease current demand for gaming consoles.
  • Expecting a hurricane increases current demand for batteries.

Conclusion

• Understand demand shift factors to recreate the list independently.
• Identify situations leading to increased or decreased demand without memorization.

Additional Resources

• For teachers: Supply and Demand unit plan available.
• For learners: Practice questions and further microeconomics content available.