Demand: Shifts, Movements, and the Five Determinants

For all else equal: we study how the quantity of pizza demanded changes when the price changes while everything else stays the same. This yields a downward-sloping demand curve with quantity on the x-axis and price on the y-axis.
Law of demand: when the price of pizza goes up, the quantity demanded goes down; movement along the same demand curve tracks this change.
Change in quantity demanded vs change in demand:
- Change in quantity demanded: movement along the same demand curve caused only by a change in price, holding all else equal.
- Change in demand: the entire demand curve shifts due to changes in factors other than the price of the good.
Five broad categories of what can shift the demand curve:
1) Changes in income
2) Changes in preferences
3) Changes in related goods
4) Changes in the size of the market
5) Changes in expectations about the future

A shift to the right in the demand curve means an increase in demand: at every price, consumers want more pizza.
A shift to the left means a decrease in demand: at every price, consumers want less pizza.
The demand curve itself shows the relationship between price and the quantity demanded, i.e., the willingness to pay for a given quantity.
A shift occurs when the willingness to pay for every quantity changes, not because the price changed.

Normal goods:
- As income rises, demand for the good increases at every price (the curve shifts right).
- Intuition: with more money, people are willing to pay more for the same quantities.
- Expressed conceptually: if income increases, rac{\partial Q_d}{\partial Y} > 0 for normal goods.
Inferior goods:
- As income rises, demand for the good decreases at every price (the curve shifts left).
- Intuition: consumers switch to higher-quality alternatives.
- Expressed conceptually: rac{\partial Q_d}{\partial Y} < 0 for inferior goods.
Example from transcript:
- Normal good example: pizza generally is treated as a normal good in many contexts (demand rises with income).
- Inferior good example: posters in a student dorm room; as income rises, demand for posters declines.

If preferences shift toward pizza (e.g., a diet trend suddenly favors pizza), demand shifts right: at every price, more pizza is desired.
If preferences shift away from pizza (e.g., a preference for healthier options or a no-pizza rule), demand shifts left: at every price, less pizza is desired.
Conceptual takeaway: changes in tastes alter the overall willingness to pay for any given quantity.

Substitutes:
- Substitutes are goods that could replace pizza, such as burritos.
- If the price of burritos falls, demand for pizza shifts left (consumers substitute toward burritos).
- Conversely, if the price of burritos rises, demand for pizza shifts right (consumers substitute toward pizza).
- General rule (for substitutes): rac{\partial Q_d^{pizza}}{\partial P^{substitute}} > 0\quad\text{(pizza demand increases when substitute price rises)}
Complements:
- Complements are goods often consumed together with pizza (e.g., gasoline for getting to the restaurant, or drinks that accompany pizza).
- If the price of a complement rises, demand for pizza falls (shift left).
- If the price of a complement falls, demand for pizza rises (shift right).
- General rule (for complements): rac{\partial Q_d^{pizza}}{\partial P^{complement}} < 0\n
Examples from the transcript:
- Substitutes: burritos are substitutes for pizza; a fall in burrito prices shifts pizza demand left.
- Complements: gasoline is a complement for pizza; a rise in gasoline price can reduce pizza demand.

A larger population means more potential buyers, so demand for pizza increases at every price (shift right).
A smaller population means fewer potential buyers, so demand shifts left.
Demographics: changes in the characteristics of the population (e.g., age distribution) can affect demand; e.g., older populations may buy less pizza if they prefer other foods.

If people expect higher future prices, they may buy more now, increasing current demand (shift right).
If people expect lower future prices, they may delay purchases, reducing current demand (shift left).
Example from transcript: if a nationwide promotion promises free pizza next week, people anticipate cheaper future prices and may reduce current purchases; in general, expected higher future prices raise current demand, while expected lower future prices reduce current demand.

When facing a question about demand, ask: how would these factors change people's willingness to pay for a given quantity?
The key intuition: the relationship between price and quantity demanded under 'all else equal' is essential for predicting how behavior changes when non-price factors shift the curve.

Demand is downward sloping: as $P$ increases, $Q_d$ decreases along a fixed demand curve, holding other factors constant.
Demand function (conceptual):
$Q<em>d = D(P, I, T, P</em>s, P_c, M, E)$
where
- $P$ = price of the good
- $I$ = income
- $T$ = tastes/preferences
- $P_s$ = price of substitutes
- $P_c$ = price of complements
- $M$ = size of the market (e.g., total population)
- $E$ = expectations about future prices
Shifts and signs (illustrative partial derivatives):
- Normal goods: rac{\partial Q_d}{\partial I} > 0\n
- Inferior goods: rac{\partial Q_d}{\partial I} < 0\n
- Substitutes: \frac{\partial Qd^{pizza}}{\partial Ps} > 0\n
- Complements: \frac{\partial Qd^{pizza}}{\partial Pc} < 0\n
Direction of shifts:
- Rightward shift = increase in demand at every price.
- Leftward shift = decrease in demand at every price.
Final takeaway: Always connect changes in demand to a change in willingness to pay for any given quantity; this perspective guides understanding of how the real world changes affect consumer behavior when “all else is not equal.”