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3.2 Changes in Demand

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Greg Caskey

on 12 October 2016

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Transcript of 3.2 Changes in Demand

3.2 Changes in Demand
Review: Which graph shows an increase in QUANTITY DEMANDED?
OR
This graph shows an increase in QUANTITY DEMANDED due to PRICE CHANGE.
This ONLY occurs due to price change.
When there is price change, you simply adjust your QUANTITY DEMANDED.
In the case above, the price of coffee dropped from $3 to $2, so the person adjusted accordingly and increased their QUANTITY DEMANDED from 12 to 16 cups a week (or a day!)
A measure of the impact of the Price Effect.
Price Effect= People buy less of something at higher prices than they would at lower prices.

When the Price Effect is LARGE, demand= ELASTIC
For cola, a small price change causes a large change in qty. demanded, so the demand for cola is ELASTIC

When the Price Effect is SMALL, demand= INELASTIC
For milk, a small price change causes only a small change in qty. demanded, so the demand for milk in INELASTIC
More Review! Price Elasticity of Demand
Generally,
Steeper lines = more INELASTIC!
Flatter lines= more ELASTIC

While this is a helpful memory tool, do not rely on this alone. Understanding the concept should be the priority!
Demand represents all quantities at all different prices, so Demand represents the ENTIRE LINE.
DEMAND= the desire, ability, and willingness to buy a product.

For Demand to change, the ENTIRE DEMAND LINE must shift.
Shift to the Right= INCREASE in Demand
Shift to the Left= DECREASE in Demand
Changes in Demand
Big Question:

What causes an increase or decrease in demand?
1. Income Change
2. Price or Availability of Substitutes
A sudden price change in one item will result in a change or shift in the demand for a substitute.
Ex: Coke and Pepsi
If the price of Coke skyrocketed, what would happen to the Demand for Pepsi??
Ex: Cars and Public Transportation
If the price of cars decreased, what would happen to the Demand for Public Transportation?
3. Prices or Availability of Complementary Goods
A sudden price change in one item will result in a change or shift in the demand for a complement
Comp. Goods- Goods that are often used together.

Ex: Hot Dogs and Hot Dog Buns
What would happen to the Demand for Hot Dog Buns if the price of Hot Dogs soared?
Ex: DVD players and DVDS
What would happen to the Demand for DVDS if the price of DVD players went down?
Ex: Printers and Ink Cartridges
If the price of Printers went up, what would happen to the Demand for Ink Cartridges?
4. Change in Weather/Season
Demand changes for certain seasons for certain goods.
Summer: increased demand for bathing suits
Summer: decreased demand for snowpants
Winter: increased demand for Slippers and Uggs (ugh!)
Winter: decreased demand for sunscreen
5. Change in # of Buyers
Increased population = Increased demand
Decreased population = Decreased demand
6. Change in Styles, Tastes, Habits
When celebrities create a popular new look in clothing or shoes, demand for that good changes.
When something goes out of style, it soon disappears from stores, as demand for that good changed
Other examples: Cars, Electronics, Certain Foods, etc.
"Canadian Tuxedo"
7. Change in Expectations
Change in the expectation of future prices.
Ex: If consumers expect Nike prices to rise, they will likely buy more today causing a demand increase.
Ex: If consumers expect laptop prices to fall, they will likely wait until the price falls, causing a demand decrease.
Changes in Demand practice
Event Product Increase or Decrease, why?
1. Increase in price of steak Hamburger
2. low-fat diet Fresh Grapes
becomes popular
3. Disney World admission Hotels near Disney
prices go up
4. Cold winter destroys Orange Juice
future orange crop
5. People's Incomes drop Flat Screen TVs
6. The Bieb sports a Denim Jackets
Canadian tuxedo to the
Grammy Awards
When George joins a book club to impress a girl and then finds the reading too costly, his demand for a substitute good (the video of the novel) rises to ridiculous proportions. In the end, he finds that the movie and the book are imperfect substitutes.
http://yadayadayadaecon.com/clip/59/
1. The law of demand implies, holding everything else constant, that as the price of yogurt
A) increases, the demand for yogurt will increase.
B) increases, the quantity of yogurt demanded will decrease.
C) decreases, the quantity of yogurt demanded will decrease.
D) decreases, the demand for yogurt will increase

2. An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.
A) increase in demand; decrease in demand
B) increase in demand; increase in quantity demanded
C) decrease in demand; decrease in quantity demanded
D) increase in quantity demanded; increase in demand

3. A change in which variable will change the market demand for a product?
A) the price of the product
B) expected future prices
C) the number of firms in the market
D) the quantity supplied of the product

4.. According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?
A) The two goods are substitutes in consumption.
B) There is no relationship between the two goods.
C) The two goods are complements in consumption.
D) They are both luxury goods.

5. If the price of gasoline increases, what will be the impact in the market for public transportation?
A) The demand curve for public transportation shifts to the right.
B) The quantity of public transportation demanded increases.
C) The demand curve for public transportation shifts to the left.
D) The quantity of public transportation demanded decreases

6. Which of the following would cause the equilibrium price of ketchup to increase and the
equilibrium quantity of ketchup to decrease?
A) a decrease in the price of tomatoes
B) an increase in the price of tomatoes
C) an increase in the price of mustard, a substitute for ketchup
D) an increase in the price of french fries, a complement for ketchup
Problem 1
What happens to the demand for pineapples when doctors determine that eating pineapples prevents baldness? What is the determinant that caused the change?
Problem 2
What happens to the demand for pineapples when consumers are experiencing a high unemployment rate and numerous layoffs in the local economy?
Problem 3
What happens to the demand for Xbox video games when the price of an Xbox gaming system decreases?
Problem 4
What happens to the demand for pharmaceuticals in a local neighborhood when a large retirement village is built nearby?
Problem 5
What happens to the demand for potatoes when corn prices drop?
Problem 6
What happens to the demand for dog food when the price of dogs decreases?
Problem 7
What happens to the demand for chicken when the price of steak goes up?
Problem 8
What happens to the demand for peanut butter when there is a report that the peanut crop for this year has been wiped out?
I.R.D.L.
Increase
Right
Decrease
Left
DEMAND CURVES SLOPE DOWNWARD!!
If income rises, people are willing to buy greater quantities at every price level.
What products would you buy more of if you had more money?
What products would you buy less of if you had less money?
Memory Tool: T.R.I.B.E.S
Tastes
Related Goods (Comp/Sub.)
Income
Buyers (# of)
Expectations
Seasons
Full transcript