Changing Other Demand Variables

Review: A change in quantity demanded is movement along the demand curve

caused by a change in the price of the good.

Review: A change in demand is a shift in a demand curve caused by changing a variable

other than price.

Substitute goods are goods that can be purchased instead of the original good because
they satisfy the same needs.

Complementary goods are goods that are closely related to the original and used with
the original goods.

A normal good is a good characterized by rising consumption when a consumer’s income

rises.

An inferior good is a good characterized by falling consumption falls when a consumer’s

income rises.

Recall from previous lectures that when the

price of the good itself changes, you have a
change in quantity demanded; this change
is represented by movement along a demand
curve. At higher prices a consumer will
purchase less bread than at lower prices. All
other factors that influence demand are held
constant.

Substitute goods are a goods that are

similar to the original and that a consumer
may purchase in place of the original goods.

If the price of a substitute good increases, the

consumer would demand more of the original
product. In this example, if the price of bagels
increases, the consumer would demand more
bread. If the price of bagels falls, the
consumer would demand less bread and more
bagels at every price.
Note: This change is a change in demand;
the demand curve shifts.
Complementary goods are closely related
to the original goods and often are purchased
with the original. In this case, cheese is the
complementary good with bread.

If the price of cheese falls, the demand for

bread will increase because consumers will
want more cheese sandwiches. The result is a
change in demand (a shift in the demand
curve).

Think about what will happen to the demand

for bread if the price of cheese increases.

A normal good is one whose consumption

increases when income increases. The
demand curve for a normal good shifts out
when a consumer’s income increases as
shown on the left. It shifts inward when a
consumer’s income decreases.

An inferior good is one whose consumption

decreases when income increases and rises
when income falls. The demand curve for an
inferior good shifts out when income
decreases and shifts in when income
increases.

The example on the left shows a change in

demand for an inferior good (such as beans)
when the consumer experiences an income
reduction.
Expectations about future prices will cause a
consumer’s demand to change in the present.
If the consumer expects the price of bread to
fall in the future, she will demand less bread
now at every price, waiting for the future to
stock up on bread. As shown on the left, the
consumer's demand curve shifts inward.

If there is a major drought in the Midwest, she

may expect future bread prices to be very
high. In this case, she may stock up on bread
now, and her demand curve will shift out.

To summarize:
When you change any of the factors that
influence demand, except price, you will cause
a change in demand. The demand curve will
shift in or out depending on the direction of
the change in the factor.

A change in price means that there is a

change in quantity demanded. This change is
movement along the demand curve, as shown
on the left and in the first graph on these
notes.