Shifts in the Demand Curve Notes

Shifts in the Demand Curve

Objectives

• Explain the difference between a change in quantity demanded and a shift in the demand curve.

• Identify the factors that create changes in demand and can cause a shift in the demand curve.

• Provide examples of how a change in demand for one good can affect the demand for a related good.

Key Terms

• Ceteris Paribus: Latin phrase meaning "all other things held constant."

• Normal Good: A good that consumers demand more of when their income increases.

• Inferior Good: A good that consumers demand less of when their income increases.

• Demographics: Statistical characteristics of populations or segments used to identify consumer markets.

• Complements: Goods that are bought and used together.

• Substitutes: Goods that can be used in place of one another.

Causes of a Shift in the Demand Curve

• A shift in the demand curve implies that at every price, consumers will buy a different quantity than before. This indicates a change in demand rather than just a change in quantity demanded, which is strictly related to price adjustments.

• Factors causing shifts in demand:

  • Income Changes:

  • Increase in income leads to increased demand for normal goods.

  • Example: If Ashley's income rises from 50 to 75 per week, her demand for pizza increases at every price level, shifting the demand curve to the right (increase in demand).

  • A decrease in income can shift demand to the left (decrease in demand).

  • Consumer Expectations:

  • Expectations about future prices can influence current demand. Expected price hikes can lead consumers to buy now, increasing current demand; anticipated price drops can decrease current demand as consumers wait.

  • Population Changes:

  • An increase in population typically raises demand for housing, food, and other goods. For instance, the post-WWII baby boom necessitated higher demand for baby products and schools.

  • Demographics:

  • Shifts in demographic characteristics can affect demand trends. For example, as the Hispanic population grows in the U.S., firms adjust their products to cater to this demographic's preferences.

  • Consumer Tastes and Advertising:

  • Changing preferences influenced by advertising can shift demand. For instance, trends in clothing can change rapidly, affecting the demand for specific items.

Effect of Price Changes on Related Goods

• Demand for goods can shift based on changes in related goods:

  • Complements: Goods used together. Example: If ski boots become more expensive, demand for skis may decrease as people buy fewer pairs if they can't afford the necessary boots.

  • Substitutes: Goods used in place of one another. Example: If the price of snowboards rises, demand for skis may increase as consumers look for alternatives they can afford.

Summary of Demand Curve Shifts

• Shift to Right: Indicates an increase in demand (more is purchased at each price).

• Shift to Left: Indicates a decrease in demand (less is purchased at each price).

• Demand curves shift due to various factors, including changes in consumer income, expectations, population size and characteristics, and advertising influences.

Conclusion

Understanding the factors that affect shifts in the demand curve is essential for analyzing market behaviors and consumer choices. Changes in the economy, demographic shifts, and advertising strategies all contribute to how and why consumer demand evolves over time.