Warm-Up
1)What made Beanie Babies so special?
2)Why did you want a Beanie Baby instead
of another cute stuffed animal?
3)Why would some people buy 2 or more
of the exact same Beanie Baby?
Understanding Demand
After completing this lesson/assignment you will be able to:
1) Identify the determinants that create changes in demand and
that can cause a shift in the demand curve.
2) Demonstrate which way a demand curve shifts given a
specific event
3) Explain how the change in the price of one good can affect
demand for a related good.
Key Vocabulary
Key Vocabulary
Review
New
–Demand
–Normal Good
–Law of Demand
–Inferior Good
–Substitution Effect
–Complements
–Income Effect
–Substitutes
–Ceteris Paribus
Understanding Demand Shifts
Increase in demand shifts right
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Understanding Demand Shifts
Decrease in demand shifts left
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Understanding Demand Shifts
Several factors, besides price, can lead to a change in demand.
These are called the:
“Non-price Determinants of Demand”
•Consumer tastes and preferences
•Prices of related goods
•Consumer expectations
•Income
•Market Size
•Government Regulation
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Consumer Tastes and Preferences (Advertising)
Does it really matter is a truck is blue or red?
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Prices of related goods
Substitute goods – margarine and butter. If butter
increases in price the demand for margarine will
increase as people switch to the lower priced
substitute
Complementary goods – goods that are commonly
used with each other.
Can you think of an example?
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Consumer Expectations
If many people think they might lose their jobs the
overall demand in the economy will go down.
Overtime?
If many people think the price of an item (say
beanie babies) is going to go up they will increase
the overall demand by purchasing more before the
price increase.
What if something goes on sale tomorrow?
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Income
If you get a raise you will have more money to
spend.
If you lose your job your demand for all products
that are not ‘needs’ will have to go down.
Income Continued
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Income (con’t.)
• Normal Goods - a good that consumers demand more of when
their incomes increase.
– Clothes
– DVD’s
• Inferior Goods - a good that consumers demand less of when
their incomes increase.
– Top Ramen
– Powdered milk
– Used books
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
Market size/Population changes
If there are a lot of people who need/want your
product then the demand will be high.
What makes a Demand Curve Shift?
Non-Price Determinants of Demand
•Consumer tastes and preferences
•Prices of related goods
•Substitute goods
•Complementary goods
•Consumer Expectations
•Income
•Normal goods
•Inferior goods
•Market Size
•Government Regulation
Multiple Choice Practice
1. Which of the following does not cause a shift of an entire demand curve?
(a) a change in price
(b) a change in income
(c) a change in consumer expectations
(d) a change in the size of the population
2. Which of the following statements is accurate?
(a) When two goods are complementary, increased demand for one will
cause decreased demand for the other.
(b) When two goods are complementary, increased demand for one will
cause increased demand for the other.
(c) If two goods are substitutes, increased demand for one will cause
increased demand for the other.
(d) A drop in the price of one good will cause increased demand for its
substitute.
Multiple Choice Practice
1. Which of the following does not cause a shift of an entire demand curve?
(a) a change in price
(b) a change in income
(c) a change in consumer expectations
(d) a change in the size of the population
2. Which of the following statements is accurate?
(a) When two goods are complementary, increased demand for one will
cause decreased demand for the other.
(b) When two goods are complementary, increased demand for one will
cause increased demand for the other.
(c) If two goods are substitutes, increased demand for one will cause
increased demand for the other.
(d) A drop in the price of one good will cause increased demand for its
substitute.
Multiple Choice Practice
1. Which of the following does not cause a shift of an entire demand curve?
(a) a change in price
(b) a change in income
(c) a change in consumer expectations
(d) a change in the size of the population
2. Which of the following statements is accurate?
(a) When two goods are complementary, increased demand for one will
cause decreased demand for the other.
(b) When two goods are complementary, increased demand for one will
cause increased demand for the other.
(c) If two goods are substitutes, increased demand for one will cause
increased demand for the other.
(d) A drop in the price of one good will cause increased demand for its
substitute.
Will the Demand
Curve shift? Which Way?
Whiteboard
exercises
Name the Non-Price Determinant of Demand
Whiteboard Exercises:
• Bananas are found to cause cancer. What happens to the demand for
bananas
• The Spirit Store puts all costumes on 50% sale today for Halloween.
What happens to demand for costumes?
• Gas prices will double next week, what happens to demand for gas this
week?
• Peanut Butter is on sale. What happens to the demand for peanut butter?
• What happens to demand for jelly?
• Small Pox hits, 25% population dies. What happens to demand for
caskets?
•
What happens to demand for all other goods?
Will the Demand
Curve shift? Which Way?
Whiteboard
exercises
Name the Non-Price Determinant of Demand
• Whiteboard Exercises:
• Price of paint goes up. What happens to demand for paint?
• What happens to demand for paintbrushes?
• Joe wins the lotto, what happens to his demand for all normal
goods? What effect is taking place?
• What happens to his demand for inferior goods?
• Eating hot cheetos with cream cheese causes weight loss and
extends life expectancy. What happens to the demand for
cheetos?
• What happens to the demand for cream cheese? Why?
Whiteboard Fill-in
exercises
/ Short Answer
1) Due to ________________you stop buying nail polish after the
120th bottle, even though the price is only $.25.
2) Bart prices sky-rocket, so due to the __________________ you
start taking the ferry to work.
3) You get a raise and buy a new car instead of a used car. This
is due to the ________________. A used car is then
considered a ___________ good.
4) Explain in complete sentences how the change in the price of
one good can affect demand for a related good.
5) Why does the law of demand only apply in a free market
economy? Explain in complete sentences.
6) Are there goods that do not obey the law of demand? Explain
in complete sentences.
Whiteboard Fill-in
exercises
/ Short Answer
1) Due to the law of diminishing utility you stop buying nail
polish after the 120th bottle, even though the price is only $.25.
2) Bart prices sky-rocket, so due to the substitution effect you
start taking the ferry to work.
3) You get a raise and buy a new car instead of a used car. This
is due to the income effect. A used car is then considered a
inferior good.
4) Explain in complete sentences how the change in the price of
one good can affect demand for a related good. If the price of
a substitute good increases, demand for the product will
increase. If the price of a complement good increases,
demand for the product will decrease.
Fill-in / Short Answer
5) Why does the law of demand only apply in a free market
economy? Explain in complete sentences. People are free to
purchase what they want in the quantities they want, making
their decisions based on price or Non-price determinants. No
government is controlling the marketplace.
6) Are there goods that do not obey the law of demand? Explain
in complete sentences.
If some “prestige” products prices are lowered the “cachet” goes
away and demand decreases.