What factors affect demand?

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 Number of
Buyers Prices of other
Price
goods

Income Determinants of Quality

Demand

Expectations
about future Supply?
Tastes

Increase in demand graph Decrease in demand graph

Determinants of Prices of other
Price
Demand goods

Expectations
Quality Income
about future

Number of
Tastes Supply?
Buyers
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 Slide Show Presentation
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• Professor determines content, depth, and
order of presentation.
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• Students make few choices about direction
of lecture.
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topics.

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 Using Action Settings
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PowerPoint presentation or an
presentation is external web page.
transformed from a • Assign “Action
Slide Show into an Settings” in Slide Show
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Increase in demand graph Decrease in demand graph

 Using Action Settings
• By assigning an actions to objects in a
presentation, a PowerPoint presentation is
transformed from a Slide Show into an interactive
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the PowerPoint presentation or an external web
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• Assign “Action Settings” in Slide Show menu.

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 Hyperlink Presentation
• Information presented in non-linear fashion.
• Professor determines content. Students and
professor determine depth and order.
• Allows for more flexibility.
• Students make choices about direction of
lecture.
• Easy to switch back and forth between
topics or commonly used slides.

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 Price
• Price is the most important determinant of
demand.
• A “demand curve” plots combinations of
prices and quantity demanded.
• A shift in price causes a shift along the
demand curve

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 Price (continued)
• A change in price causes a shift along the
demand curve.
• A shift along the demand curve is referred
to as a “shift in the quantity demanded.”
• A shift in any other variable except price
causes a shift in the entire demand curve.
• A shift in the entire demand curve is
referred to as a “shift in demand.”

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 Income
• Changes in income can increase or decrease
demand.
• A good whose demand decreases with an
increase in income is called an “inferior
good.”
• A good whose demand increases with an
increase in income is called a “normal
good.”

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 Examples of changes in income
• An increase in income will reduce the
demand for ramen noodles or generic
products.
• An increase in income will increase the
demand for cars or clothing.
• An increase in income will significantly
increase the demand for air travel or
jewelry.

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 Prices of other goods
• Changes in the prices of other goods can
increase or decrease demand.
• A good that causes an increase in the
demand for another good when its price
increases is called a “substitute good.”
• A good that causes a decrease in the demand
for another good when its price increases is
called a “complementary good.”

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 Examples of changes in other
prices
• An increase in the price of peanut butter
will reduce the demand for jelly. Peanut
butter and jelly are complements.
• An increase in the price of Pepsi will
increase the demand for Coke. Pepsi and
Coke are substitutes.

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 Number of buyers
• An increase in the number of potential
buyers will increase the demand for the
good.
• For example, the demand for land increases
as the population increases.
• Similarly baseball tickets are generally
more expensive in larger cities.

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 Future Prices
• An increase in the expected future price of a
good increases current demand.
• A decrease in the expected future price of a
good decreases current demand.
• For example, when a good is temporarily
put on sale, people stock up on the good.

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 Tastes
• Demand curves can shift due to changes in
tastes over time.
• For example, demand for cereal may be
high in the morning but low at night.
• Similarly, demand for Saturday Night Fever
CDs may be high in the 1970s but low in
the 2000s.

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 Quality
• Demand curves can shift due to changes
quality.
• At a given price, demand for Giordano’s
pizza is higher than the demand for Papa
John’s.
• Similarly, CDs cost more than cassettes
because the music is of higher quality.

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 Supply?
• Demand curves do not shift due to changes
supply.
• Shifts in supply change the equilibrium
price causing a shift along the demand
curve.
• Shifts in supply cause a change in the
quantity demand not a shift in the demand
curve.

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 Graph of a supply shift
• An decrease in
40
supply shifts the
35 supply curve to
30
25 the left.
20
Price

15
10
• Equilibrium
5
0
price increases.
0 2000 4000 6000 8000 10000 12000 14000 • Quantity
Quantity
demanded
Old demand New supply Supply
decreases.

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 Increase in demand

• An increase in
40
demand shifts the
35 demand curve to
30
25 the right.
• Equilibrium price
Price

20
15
10
5
increases.
0 • Quantity demanded
0 2000 4000 6000 8000 10000 12000 14000
Quantity increases.
Old demand New demand Supply

Increase in demand graph Decrease in demand graph

 Decrease in demand

• A decrease in
40 demand shifts
35
30 the demand
25
curve to the left.
Price

20
15
10
• Equilibrium
5 price falls.
0
0 2000 4000 6000 8000 10000 12000 14000 • Quantity
Quantity
demanded falls.
Old demand New demand Supply

Increase in demand graph Decrease in demand graph