In this lesson, students will identify factors which can cause a demand curve to shift. Students...

In this lesson, students will identify factors which can cause a demand curve to shift.

Students will be able to define and/or identify the following terms:

Ceteris ParibusShifts in the Demand Curve

Factors that Cause a Demand Curve to ShiftComplements

While the price of a good influences aconsumer’s decision to purchase, it is

not the only factor.

Ceteris Paribus Ceteris Paribus is a Latin phrase meaning

that all other things are held constant.

A demand curve assumes Ceteris Paribus or that only price is changing while all other things are held constant.

In other words, a demand curve only looks at price. It does not consider other factors that influence demand.

As any parent will tell you, sometimescereal is only bought for the toy inside.

Shifts in the Demand Curve When a demand curve shifts, it moves.

Price can never shift a demand curve because price is in the demand curve.

To shift a demand curve, it must be some factor other than price.

D is the original demand curveD1 is the demand curve after it

has shifted. Notice that by shiftingto the left, demand has decreased

at every price level.

Here is a simple rule to remember:

If the curve shifts left, left means less. Demand has decreased atevery price level.

If the curve shifts right, right meansmore. Demand has increased atevery price level.

Certainly, an outbreak of Mad Cow’sDisease would decrease demand for

beef at every price level.

Factors that Can Shift a Demand Curve The following are factors that can shift a

demand curve:

Advertising

Population

Consumer Taste

Consumer Expectations about Future Prices

The Price of Complements

The Price of Substitutes

The Baby Boom generation increaseddemand for goods at all price levels.

Advertising can increase demand atall price levels.

Complements are goods purchased together. If the price of the Game Cube

rises, people will buy fewer games.

If we think the price of a populargood will drop, we will buy lessat all price levels today and wait

for the future lower price.

Questions for Reflection: State the Law of Demand. What is the relationship between the law

of demand and Ceteris Paribus? Why can price not shift a demand

curve? What factors can shift a demand curve? Provide an example of a complement. What happens when a demand curve

shifts left? Right?