1.3 Shifts in Demand

7/31/2019 1.3 Shifts in Demand

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Different

GoodsDiagramIntro Causes Exceptions

More DemandDiagrams!

& changes in the conditions of demand


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Different

GoodsDiagramIntro Causes Exceptions

Lesson Objectives

To review factors that cause a MOVE

and a SHIFT in Demand.

To be able to apply the concepts of

different types of goods to issues ofdemand.


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Different

GoodsDiagram CausesIntro Exceptions

Basic Demand curve

The quantity of a product consumers arewilling and able to buy at different prices ina specified time period

Normally there is an inverse relationshipbetween the price of good X and the quantitydemanded of good X


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Different


Movementsalong a

demand curve


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The Demand Curve

QuantityDemanded

Demand

P1

Q1Q2

P2

Price


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A contraction of demand

QuantityDemanded

Demand

P1

Q1Q2

P2

A contraction ofdemand due to a

higher price

Price


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An expansion of demand

QuantityDemanded

Demand

P1

Q1 Q2

P2

An expansion of

demand due to alower price

Price


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Different


Exam skills in drawing diagrams

Do not draw too small or too big!

Keep it neat!

Always label axis with a 0, and top/bottom titles.

MUST label curve(s)

Draw on movement arrows (on the axis)


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Different


Achange in price

causes a..movement along

the demandcurve!


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Different


Shifts in

Demand


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Different


QuantityDemanded

D1

P1

Q1 Q2Q3

D2

D3

Increase inDemandDecrease inDemandPrice

What cancause demandto increase orfall, despite

the priceremaining the

same?


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Intro Diagram CausesDifferent

GoodsExceptions

Causes of an outward shift in demand A rise in the real incomes of consumers An increase in the price of a substitute good (i.e.

a competing product) A fall in the price of a complementary good A change in consumers preferences towards

the good An increase in the size of the total population A fall in interest rates A rise in consumer confidence Social changes which affect total demand for a

product


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GoodsExceptions

Group work You will be given an image slide to work in

groups of 3s

You need to be able to EXPLAIN the specificfactors that would influence an increase inmarket demand for the good/service on your

sheet!

After 5 mins you will need to feedback yourideas to the groupelect a spokesperson inyour group!


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GoodsExceptions

Individual work.

Using your whiteboard.

Sketch some demand curves for thefollowing situations and think of how you

would expect the demand curve tochange.


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GoodsExceptions

QUICK FIRE DRAWINGS

The demand for choc following campaignon the dangers of obesity

The demand for oranges following amedical research linking a reduction incolds and eating/drinking oranges.


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page 01 page 02 page 03 Different

Goods

Exceptions

Different types of goods

Normal

Substitutes

Complementary

Inferior Ostentatious


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Goods

Exceptions

Substitutes

Substitutes are goods in competitivedemand

They are replacements for another product

For example, a rise in the price of Esso petrol

(other factors held constant) should cause asubstitution effect away from Esso towardsShell or other competing brands


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Goods

Exceptions

What could be a substitute product for:

Esso petrol?

BT phone line?

Budget car rental?

Fresh salmon? Beer?

Nike trainers?


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page 01 page 02 page 03

Different

GoodsExceptions

Changes in price of Substitutes

P1

Q1Q2

Demand

Output (Q)

Price of

Texaco

petrol

P1

Q1 Q2

D1

Output (Q)

Price of

Shell

petrol

P2

D2

Intro Diagram Causes


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Goods

Exceptions

Complements

Complements are said to be in jointdemand

Examples include: fish and chips, DVDplayers and DVDs, iron ore and steel

A rise in the price of a complement to Good Xshould cause a fall in the demand for X


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Goods

Exceptions

What are the complementgoods to these items?

To fish and.

DVD players

Ipods

Flights from London to New York

A fall in price for digital camera

A change in the demand for

these goods will directly effect

the demand for their

complementary goods.

The extent to which achange in the price ofone good leads to achange in the demandfor a complementis determined by thecross-price elasticityof demand.


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Goods

Exceptions

Inferior Goods

For normal products, more is demanded as income

rises, and less as income falls There are exceptions called inferior products

They are often cheaper poorer quality substitutes forsome other good

With a higher income a consumer can switch from thecheaper substitute to preferred alternative

As a result, less of the inferior product is demanded athigher levels of income


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Goods

Exceptions

Ostentatious Goods

Some goods are luxurious items where satisfaction

comes from knowing both the price of the good andbeing able to flaunt consumption of it to other people!

JimmyChoo460

Dolce & Gabbana 250
http://www.jimmychoo.com/pws/ProductDetails.ice?ProductID=72069


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Goods

Exceptions

Ostentatious GoodsOlympic Gold medallist rewarded with Jimmy Choo shoes!


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GoodsExceptions

Exceptions

Some goods & services do not have an inverserelationship with price

Ostentatious goods the lower the price, the targetcustomers will not want the product, but the higher theprice the higher the demand!

Speculative demand - potential buyers are interestednot just in the satisfaction they may get fromconsuming the product, but also the potential rise inmarket price leading to a capital gain or profit


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GoodsExceptions

Exceptions

Giffen Goods - special type of inferior good may exist,

which disobeys the "law of demand". When the price of a Giffen Good decreases, the

demand for that good decreases.

This would have to be a good that is such a largeproportion of a person or market's consumption that

the income effect of a price increase would produce,effectively, more demand.

The observed demand curve would slope upward,indicating positive elasticity.
http://en.wikipedia.org/wiki/Income_effecthttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Price_elasticity_of_demandhttp://en.wikipedia.org/wiki/Price_elasticity_of_demandhttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Income_effect


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GoodsExceptions

On your whiteboard.

On one side write OUTWARD

On the other write INWARD

Then be prepared to decide what the

effect of the following will have ondemand.


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GoodsExceptions

What if.. Substitute products price increase?

Incomes fallwhat will be the effect on normalgoods?

A product has a major advertising campaign?

Science proves that regular mobile phone usedamages memory!

Price of newspaper increases..? Careful

Inward or outward

shift?

In your notes draw

a diagram to showthe impact on the

demand schedule(s)for each of these

situations


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Changes in price of Substitutes

P1

Q1Q2

Demand

Output (Q)

Price of

Texaco

petrol

P1

Q1 Q2

D1

Output (Q)

Price of

Shell

petrol

P2

D2


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GoodsExceptions

Homework

Research and find an three examples of a

good/service normal goods

inferior goods

ostentatious goods

Eg Shoes

Christian LacroixLarge bow shoeboots 365

Normal?
http://uk.wrs.yahoo.com/_ylt=A0WTf2seyJBIbTkAWVhNBQx.;_ylu=X3oDMTBpaWhqZmNtBHBvcwMzBHNlYwNzcgR2dGlkAw--/SIG=1n5no2ic9/EXP=1217534366/**http%3A//uk.images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fuk.images.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dinferior%252Bshoes%2526fr%253Dyfp-t-501%2526ei%253DUTF-8%26w=500%26h=390%26imgurl=static.flickr.com%252F2063%252F2054077415_194474ad89.jpg%26rurl=http%253A%252F%252Fwww.flickr.com%252Fphotos%252F71283914%2540N00%252F2054077415%252F%26size=81.9kB%26name=the%2Bballad%2Bof%2Bthe%2B%252B%25245%2BChucks%26p=inferior%2Bshoes%26type=JPG%26oid=dd360401712dcde8%26fusr=EdgarDiazRocks%26tit=the%2Bballad%2Bof%2Bthe%2B%252B%25245%2BChucks%26hurl=http%253A%252F%252Fwww.flickr.com%252Fphotos%252F71283914%2540N00%252F%26tt=28%26no=3%26sigr=11l1kon6d%26sigi=11g1100mc%26sigb=12m58dat9%26sigh=11a9r96lh


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What factors are influencingmarket demand for smoothies?


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What factors are influencingmarket demand for houses?


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What factors are influencing marketdemand for second hand cars?


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What factors are influencing marketdemand for bread makers?


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What factors are influencing marketdemand for holiday cottage in UK?


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What factors are influencing marketdemand for buses?


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What factors are influencing marketdemand for wellingtons?


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What factors are influencing marketdemand for cinema experience?


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Documents

1.3 Shifts in Demand