1.3 shifts in_demand [e_doc_find.com]

Different

GoodsDiagramIntro Causes Exceptions

More Demand Diagrams!

& changes in the conditions of demand

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 of demand.

Different

GoodsDiagram CausesIntro Exceptions

Basic Demand curve…• The quantity of a product consumers are

willing and able to buy at different prices in a specified time period

– Normally there is an inverse relationship between the price of good X and the quantity demanded of good X

Different


Movements along a

demand curve

The Demand Curve

Quantity Demanded

Demand

P1

Q1Q2

P2

Price

A contraction of demand

Quantity Demanded

Demand

P1

Q1Q2

P2

A contraction of demand due to a

higher price

Price

An expansion of demand

Quantity Demanded

Demand

P1

Q1 Q2

P2

An expansion of demand due to a

lower price

Price

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)

Different


What comes first?

The change in price or a change in demand?

A change in price

causes a…..movement along

the demand curve!

Different


Shifts in Demand

Different


Quantity Demanded

D1

P1

Q1 Q2Q3

D2

D3

Increase in Demand

Decrease in DemandPrice

What can cause demand to increase or

fall, despite the price remaining

the same?

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


GoodsExceptions

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

groups of 3’s

• You need to be able to EXPLAIN the specific factors that would influence an increase in market demand for the good/service on your sheet!

• After 5 mins you will need to feedback your ideas to the group – ‘elect’ a spokesperson in your group!


GoodsExceptions

Individual work….• Using your whiteboard….

• Sketch some demand curves for the following situations and think of how you would expect the demand curve to change….


GoodsExceptions

QUICK FIRE DRAWINGS…

• The demand for choc following campaign on the dangers of obesity

• The demand for oranges following a medical research linking a reduction in colds and eating/drinking oranges.

page 02 page 03 Different

Goods

Exceptions

Different types of goods

• Normal

• Substitutes

• Complementary

• Inferior

• Ostentatious


Goods

Exceptions

Substitutes• Substitutes are goods in competitive

demand – They are replacements for another product– For example, a rise in the price of Esso petrol

(other factors held constant) should cause a substitution effect away from Esso towards Shell or other competing brands


Goods

Exceptions

What could be a substitute product for:

• Esso petrol?

• BT phone line?

• Budget car rental?

• Fresh salmon?

• Beer?

• Nike trainers?

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


Goods

Exceptions

Complements• Complements are said to be in joint

demand– Examples include: fish and chips, DVD

players and DVDs, iron ore and steel– A rise in the price of a complement to Good X

should cause a fall in the demand for X


Goods

Exceptions

What are the complement goods 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 a change in the price of one good leads to a change in the demand for a complementis determined by the cross-price elasticity of demand.


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 for

some other good• With a higher income a consumer can switch from the

cheaper substitute to preferred alternative• As a result, less of the inferior product is demanded at

higher levels of income


Goods

Exceptions

Ostentatious Goods• Some goods are luxurious items where satisfaction

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

Jimmy Choo £460

Dolce & Gabbana £250

http://www.jimmychoo.com/pws/ProductDetails.ice?ProductID=72069


Goods

Exceptions

Ostentatious GoodsOlympic Gold medallist rewarded with Jimmy Choo shoes!


GoodsExceptions

Exceptions• Some goods & services do not have an inverse

relationship with price…

• Ostentatious goods – the lower the price, the target customers will not want the product, but the higher the price – the higher the demand!

• Speculative demand - potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit


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 large

proportion 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_effect

http://en.wikipedia.org/wiki/Demand_curve

http://en.wikipedia.org/wiki/Price_elasticity_of_demand


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 on demand.


GoodsExceptions

What if…..• Substitute products’ price increase?• Incomes fall – what will be the effect on ‘normal’

goods?• A product has a major advertising campaign?• Science proves that regular mobile phone use

damages memory! • Price of newspaper increases…..? Careful…

Inward or outward shift?

In your notes– draw a diagram to show the ‘impact’ on the

demand schedule(s) for each of these

situations

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


GoodsExceptions

Homework…• Research and find an three examples of a

good/service… • ‘normal’ goods • inferior goods• ostentatious goods

• Eg Shoes…

Christian LacroixLarge bow shoe boots £365

Normal?

Have I mentioned my fascination for

shoes yet?

What factors are influencing market demand for smoothies?

What factors are influencing market demand for houses?

What factors are influencing market demand for second hand cars?

What factors are influencing market demand for bread makers?

What factors are influencing market demand for holiday cottage in UK?

What factors are influencing market demand for buses?

What factors are influencing market demand for wellingtons?

What factors are influencing market demand for cinema experience?

1.3 shifts in_demand [e_doc_find.com]

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