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Determinants of Demand. Review: Change in Quantity Demanded. Price. D1. Quantity. On to … Determinants of Demand. DETERMINANTS OF DEMAND. Changes in income Changes in the prices of related goods Substitutes: goods that can replace one another - PowerPoint PPT Presentation
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Determinants of Demand
Review: Change in Quantity Review: Change in Quantity DemandedDemanded
Quantity
Price
D1
On to … Determinants of Demand
DETERMINANTS OF DEMANDChanges in income
Changes in the prices of related goods Substitutes: goods that can replace one
another Compliments: goods that are consumed
together
Changes in the size or composition of the population
Change in price expectations
Changes in tastes/preferences
Practice Problem #1
What would happen to the demand of pizza if you find out pizza causes heart disease? • Determinant?• Increase or decrease in demand?
Answer to Practice Problem #1
What would happen to the demand for pizza if you find out that pizza causes heart disease?
• Determinant - A change in consumer tastes/preferences; consumer expectations
• Decrease in demand
Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
• Determinant?• Increase or decrease in demand?
Answer to Practice Problem #2
What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities?
•Determinant – A change in consumer
tastes/preferences•Increase in demand
Practice Problem #3
•A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
•Determinant?•Increase or decrease in demand of Red
Bull?
Answer to Practice Problem #3
•A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes).
•Determinant – A related good (substitute)•Decrease in demand of Red Bull
Practice Problem # 4
•Student allowances and the minimum wage for work increases.
•Determinant?•Increase or decrease in demand of video
games?
Practice Problem # 4
•Student allowances and the minimum wage for work increases.
•Determinant – Income increase•Increase in demand of video games
Movement Along a Demand Curve Versus a Shift of the Curve
• Remember there is a difference between quantity demanded and demand.
• Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether.
• A change price creates a change in the quantity demanded, other things constant. ▫ This causes a movement along the demand curve.
• A change in one of the determinants of demand causes a change in demand.▫ This causes in a shift of a demand curve. Or a new
curve.
What determinants would increase the market demand for pizza?
Determinants Increasing Demand•Increases in income•Increases in population•Increase in prices of substitute goods•Decrease in price of complement goods•Consumer expectation that prices will
increase in the future•Improvement in taste•Increased consumer preferences
Determinants of increased demand change the story….. How so?
Quantity demanded of pizza per week (by millions)
Price of pizza
15 $15.00
20 $12.00
25 $9.00
30 $6.00
35 $3.00
--- $0.00
Quantity demanded of pizza per week (by millions)
Price of pizza
9 $15.00
14 $12.00
19 $9.00
25 $6.00
30 $3.00
--- $0.00
Original Story New Story
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
How would determinants of increased demand change the picture of demand?
b
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
Increased Market Demand for Pizza
D2
fb
What determinants would decrease the market demand for pizza?
Determinants Decreasing Demand•Decreases in income•Decreases in population•Decrease in prices of substitute goods•Increase in price of complement goods•Consumer expectation that prices will
decrease in the future•Deterioration of taste•Decreased consumer preferences
Determinants of decreased demand change the story….. How so?
Quantity demanded of pizza per week (by millions)
Price of pizza
5 $15.00
10 $12.00
15 $9.00
20 $6.00
25 $3.00
--- $0.00
Quantity demanded of pizza per week (by millions)
Price of pizza
9 $15.00
14 $12.00
19 $9.00
25 $6.00
30 $3.00
--- $0.00
Original Story New Story
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
D1
How would determinants of decreased demand change the picture of demand?
b
b
D2
Decreased Market Demand for Pizza
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Pri
ce p
er
piz
za
j
D1
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