Summary

  • Increase in demand shifts curve to right
  • Decrease in demand shifts curve to left
  • Six factors shift demand curve
  • Effect of changing income depends on if the good is normal or inferior
  • Effect of changing price of related good depends on if the two goods are compliments or substitutes

Shift in Demand Curve

Increase in Demand shifts demand curve to the right

Decrease in Demand shifts demand curve to the left

Six Factors that Shift Demand Curve

1. Income

All choices are dependant on income since it’s a limited asset.

Normal Good: Higher income, higher demand

  • Smartphones
  • Restaurant Meals
  • Organic foods

Inferior Good: Higher income, lower demand

  • Dumbphones
  • Fast food
  • Canned foods

2. Preferences

Preference changes may shift your personal demand curve, these reasons may include:

  • Life-altering events (having a child means buying diapers)
  • Marketing, fads, influencing (Kim Kardashian wore something, now everyone needs it)
  • Social Pressure (People stop smoking cigarettes because it’s considered nasty)
  • Season/Weather (people buy sunscreen in the summer)

Other goods may affect your demand on a particular good

Complimentary Goods: Goods that go well together

Demand of your good decreases if complimentary good price increases

  • Cereal and Milk
  • Car and Gas

Substitute Goods: Goods that replace each other

Demand for good increases if price of substitute good increases

  • Xbox and Playstation
  • Coke and Pepsi

4. Expectations

Expectations about future prices/suppy influence current demand

  • If gas prices are high now and you think they will fall, you may wait a few days to buy gas

5. Congestion + Network Effects

The choices of others affect your demand and usefulness from that item

Network Effect: Good usefulness rises when people using rises

  • Social media Congestion Effect: Good usefulness drops when people using rises
  • Too many cars on the road, making a traffic jam

6. Type + Number of Buyers

Change in demographic may change market demand

Type of Buyer: When baby boomers age, retirement home demand will rise

Number of Buyer: Increase in population can increase demand

Shift vs Movement on Demand Curve

If only Price changes, movement on demand curve

  • This is a change in quantity demanded

If other factors change, shift in demand curve

  • This is a change in demand itself

Personal Note