3-2 Changes in Demand
• What does it mean for a product’s demand to
shift?
• What factors can shift demand for a product?
• How do substitute goods differ from
complementary goods?
• determinants of demand
• substitution goods
• complementary goods
• When a product’s demand shifts, different
quantities of a product are demanded at each
and every price.
• Determinants of demand – factors other than
price that cause an increase or decrease in the
quantity demanded at each price
• Causes the graph to shift to the left (decrease)
or to the right (increase)
(Non-price) Determinants of demand – Factors other
than price causes an increase or decrease in quantity
demanded at any given price – creates a new
demand curve
1. Consumer tastes and preferences
2. Market size
3. Income
4. Prices of related goods
5. Consumer expectations
• Consumer tastes and preferences
• Based on popularity and trends
• May be influenced by advertising
• Baby carrots; Silly Bandz
• Market size
• Based on the number of people in a geographic
area
• Can also reflect the number of people in a
demographic – example: knee/hip replacements
• Income
• More money = higher demand – get a job or a raise
• Less money = lower demand – lose a job
• Consumer expectations
• Behavior changes based on what people believe will
happen
• Example – stop and get gas if you think prices will
go up even if you wouldn’t normally have stopped
• Price of related goods
• Demand is connected to the demand of another
product
• Substitute goods
• Goods that can be used in place of another product
when the price rises – price of butter goes up so you
buy margarine instead – demand for margarine
changes though the price of margarine hasn’t
changed
• Price of related goods
• Demand is connected to the demand of another product
• Complementary goods
• Goods that are used along with another good
• You buy more of the complementary good even though
the price hasn’t changed when the price of another good
drops
• Example – if the price of paint drops, you buy more
paint brushes even though the price hasn’t changed–
paint brushes are a complementary good to paint
Product
butter
Substitute Good
margarine
Complementary Good
bread