Understanding Demand Curve Shifts

Sep 11, 2024

Economics Lecture: Shifts in Demand

Overview of Demand Curve Shifts

  • Increase in Demand
    • Demand curve shifts up and to the right
    • Example: Houseplants
      • At $20, quantity demanded increases from 5 to 8 plants
      • At $16, from 6 to 9 plants
      • At $12, from 7 to 10 plants
    • Vertical Method: Higher willingness to pay for the same quantity
      • Example: For the 5th unit, the price increases from $20 to $32
  • Decrease in Demand
    • Demand curve shifts down and to the left
    • Reduced quantity demanded at every price
    • Example: At $20, demand decreases from 5 to 2 houseplants
    • Lower willingness to pay for the same quantity
      • Example: For the 5th unit, the price decreases from $20 to $8

Factors Influencing Demand Shifts

1. Income

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

2. Population

  • Increase in population can lead to increased demand
  • Example: Increase in elderly population increases demand for hearing aids
  • Decrease in birth rates can decrease demand for certain goods

3. Tastes

  • Changes in preferences can increase or decrease demand
  • Examples:
    • Low-carb diets may increase hamburger demand
    • Ethical concerns may decrease hamburger demand

4. Price of Related Goods

  • Substitutes
    • Goods that can replace each other
    • Example: Hot dogs and hamburgers
    • Increase in price of hot dogs increases demand for hamburgers
  • Complements
    • Goods that are used together
    • Example: Hamburgers and buns
    • Increase in price of hamburgers decreases demand for buns

5. Expectations

  • Expectations of future prices or events can shift demand
  • Examples:
    • Potential price reductions in gaming consoles might reduce current demand
    • Anticipated price hikes due to hurricanes can increase current demand for batteries

Conclusion

  • Understand shifts in demand to recreate the factors causing shifts
  • Reflect on demand influencers: population changes, income levels, trends in tastes, etc.
  • Avoid memorizing; focus on understanding demand dynamics
  • Action Items:
    • Review supply and demand unit plans
    • Practice identifying demand shifters
    • Engage with practice questions to reinforce concepts