C
H
A PREDICTING THE SHIFT OF THE DEMAND CURVE
PT
E Objectives:
Learning
By R
the end of the session the students will be able to:
identify factors that affect a change in demand; and,
2.
explain a graph that depicts a change in demand.
LE
SS Targets:
Lesson
Lesson targets are skills and knowledge you want to be able to accomplish at the end of the session.
Othe lesson targets carefully and keep them as we go through in today’s session.
Read
N
I can discuss how the determinants of demand affect a change in demand.
2.
I can analyze, illustrate and interpret a graph that shows a change in demand.
2
DISCUSSION
Concept Notes:
DETERMINANTS OF DEMAND
Income
Tastes and Preferences
The Number of Consumers
The Prices of Related Goods
Expectations of Future Prices and Income
RULE:
Demand curve will shift to the RIGHT when the demand INCREASES, and move to the LEFT as
demand DECREASES.
4
Example:
PRICE
3
Ma’am Dizon lost her job last June, her
2 income decreased, so the demand for
1 normal goods also decreased.
0
20 40 60 80 100 120
QUANTITY
4
PRICE
3 Example:
The increase in the population of San
2
Isidro, Nueva Ecija, increases the
1 demand for consumer goods.
0
20 40 60 80 100 120
QUANTITY
Applied Economics | 1
Remember:
P1 When prices change, quantity
PRICE demanded will change. That is a
P2 movement along the same demand
curve. When factors other than price
changes, demand curve will shift. As
P3 we know there are determinants of
Demand (D)
demands why it change when price
change.
Q1 Q2 Q3
QUANTITY
Let’s explore more the determinants of demand by asking the following questions:
IN INCOME
Does a rise in a person’s income will lead to Yes, because the person has more capacity
an increase in demand (shift demand curve to buy or less capacity to buy that is why
to the right), a fall will lead to a decrease in demand rise or fall when income rises or
demand for normal goods? fall.
IN CONSUMER TASTES AND
PREFERENCES
Are favorable change leads to an increase in
demand, while unfavorable change leads to Yes, because people buys more when they
decrease? liked the product. On the other hand, they
will not buy it again if they were not
satisfied with the product.
IN NUMBER OF CONSUMERS/BUYERS
Do more buyers lead to an increase in
demand; fewer buyers lead to decrease? Yes, the more buyers will lead to an
increase in demand; fewer buyers lead to
decrease in demand.
IN PRICE OF RELATED GOODS
a. Substitute Goods Yes, because …
(those that can be used to replace each a. For example:
other): Does price of substitute and If the price of coffee rises, the
demand for other good are directly demand for tea should increase
related? assuming that the price of tea
doesn’t change or lower that the
b. Complement Goods coffee.
(those that can be used together): Does
price of complement and demand for b. For example:
the other good are inversely related? If the price of ice cream increases,
the demand for ice cream toppings
IN EXPECTATIONS OF FUTURE will decrease.
PRICES AND INCOME
a. Future Price
Does consumers’ current demand will Yes, because …
increase if they expect higher future a. Consumers’ current demand will
prices; their demand will decrease if increase if they expect higher future
they expect lower future prices? prices; their demand will decrease if
they expect lower future prices.
b. Future Income
Does consumers’ current demand will
increase if they expect higher future b. Consumers’ current demand will
income; their demand will decrease if increase if they expect higher future
they expect lower future income? income; their demand will decrease
if they expect lower future income.
Applied Economics | 2
Applied Economics | 3
