SESSION 2:

CHANGES IN DEMAND
 LEARNING OBJECTIVES

 Explain the influences on the demand curve

 Determine what influences a positive change in demand curve
 Determine what influences a negative change in demand curve
 Understand the concept of shift in demand curve with the help of
diagram.
 DEMAND

 A Change in Demand
When any factor that influences buying plans changes, other than the price of
the good, there is a change in demand
 DEMAND

When demand increases, the demand curve shifts rightward and the quantity demanded at each
price is greater

Six main factors bring changes in demand

 Prices of Related Goods

• The quantity of Chomp bars that consumers plan to buy depends in part on the prices of
substitutes for Chomp bars (see Figure 3.2)
• A substitute is a good that can be used in place of another good
• The quantity of Chomp bars that people plan to buy also depends on the prices of a substitute
product (TV bar Chocolate)
• If Price of Chomp bar Increases, people buy more TV bar and therefore Demand for Chomp bars
shifts leftwards (Negative Relationship)
• complements with Chomp bars
• A complement is a good that is used in conjunction with another good
• Hamburger and fries are complements, If the price of Hamburger increases, people are more
likely to buy less of fries therefore the Demand for Hamburger Decreases, (Positive
Relationship)
 DEMAND

 Expected Future Prices

• If the expected future price of a good rises and if the good can be stored, the opportunity
cost of obtaining the good for future use is lower today than it will be in the future when
people expect the price to be higher
• So people retime their purchases – they substitute over time

 Income

• When income increases, consumers buy more of most goods; and when income
decreases, consumers buy less of most goods

 Expected Future Income and Credit

• When expected future income increases or credit becomes easier to get, demand for the
good might increase now
 DEMAND

 Population

• Demand also depends on the size and the age structure of the population
• The larger the population the, the greater is the demand for all goods and services, the
smaller the population, the smaller is the demand of all goods and services.

 Preferences

• Preferences determine the value that people place on each good and service
• Preferences depend on weather, information, and fashion
• Example: greater health and fitness awareness has shifted preferences away from eating
Chocolates bars, so the demand of Chomp bars will decrease.
 DEMAND

 A Change in the Quantity Demanded Versus a Change in Demand

• A point on the demand curve shows the quantity demanded at a given price, so a movement
along the demand curve shows a change in the quantity demanded

Movement Along the Demand Curve

If the P of the good changes

but no other influence on buying
plans changes, we illustrate the
effect as a movement along the
demand curve A in the P
of a good the Qd of it
 DEMAND

 A Shift of the Demand Curve

• If the price of a good remains constant but some other influence on buying plans changes, there is a
change in demand for that good
• We illustrate a change in demand as a shift of the demand curve

Table 3.1 The Demand for Chomp Bars (Summary)

The Law Of Demand

Decreases If: Increases If:

• the price of Chop bar rises • the price of Chomp bar falls

Changes in Demand

• the price of a substitute falls • the price of a substitute rises

• the price of a complement rises
• the expected future price of a Chomp bar falls
• Income falls*
• Expected future income falls or credit becomes
harder to get*
• the population decreases
• the price of a complement falls
• the expected future price of a Chomp bar rises
• Income rises*
• Expected future income rises or credit becomes
easier to get*
• the population increases
 DEMAND

 People come to expect that the price of a litre of petrol will rise
next week. As a result,
a) next week's supply of petrol decreases.
b) today's supply of petrol increases.
c) the price of a litre of petrol falls today.
d) todays’ quantity demanded for petrol increases.
e) today's demand for petrol increases.
 DEMAND

 The demand curve for a normal good shift leftward if income

________ or the expected future price ________.
a) increases; falls
b) decreases; falls
c) increases; rises
d) decreases; rises
e) increases, unchanged
 DEMAND

 A decrease in the price of a game of bowling shifts the:

a) demand curve for bowling balls rightward.
b) supply curve of bowling balls rightward.
c) supply curve of bowling balls leftward.
d) demand curve for bowling balls leftward.
e) shifts the PPF for bowling balls.
 DEMAND

 An unusually warm winter shifts the:

a) supply curve of gloves rightward.
b) supply curve of gloves leftward.
c) demand curve for gloves leftward.
d) demand curve for gloves rightward.
e) MSC curve of gloves rightwards.
END OF SESSION 2