Chapter 4 Section 2Chapter 4 Section 2Shifts of the Demand Shifts of the Demand

CurveCurve

Shifts in DemandShifts in Demand

Ceteris paribusCeteris paribus is a Latin phrase is a Latin phrase economists use meaning “all other things economists use meaning “all other things held constant.”held constant.”

A demand curve is accurate only as long A demand curve is accurate only as long as the as the ceteris paribusceteris paribus assumption is true. assumption is true.

When the When the ceteris paribusceteris paribus assumption is assumption is dropped, movement no longer occurs dropped, movement no longer occurs along the demand curve. Rather, the along the demand curve. Rather, the entire demand curve shifts. entire demand curve shifts.

1. Income

Changes in consumers incomes affect demand. A normal good is a good that consumers demand more of when their incomes increase. An inferior good is a good that consumers demand less of when their income increases.

2. Consumer Expectations

Whether or not we expect a good to increase or decrease in price in the future greatly affects our demand for that good today.

What Causes a Shift in What Causes a Shift in Demand?Demand?

Several factors can lead to a change in Several factors can lead to a change in demand:demand:

3. PopulationChanges in the size of the

population also affects the demand for most products.

4. Consumer Tastes and AdvertisingAdvertising plays an important role

in many trends and therefore influences demand.

The demand curve for one good can be affected by a change in the demand for another good.

Prices of Related GoodsPrices of Related Goods

Complements are two Complements are two goods that are bought goods that are bought and used together. and used together. Example: skis and ski Example: skis and ski boots boots

Substitutes are goods Substitutes are goods used in place of one used in place of one another. Example: another. Example: skis and snowboards skis and snowboards

Section 2 AssessmentSection 2 Assessment1. Which of the following does not cause a shift of an entire 1. Which of the following does not cause a shift of an entire

demand curve?demand curve?(a) a change in price(a) a change in price

(b) a change in income(b) a change in income

(c) a change in consumer expectations(c) a change in consumer expectations

(d) a change in the size of the population(d) a change in the size of the population

AnswerAnswer

(a) a change in price(a) a change in price

Section 2 AssessmentSection 2 Assessment2. Which of the following statements is accurate?2. Which of the following statements is accurate?

(a) When two goods are complementary, increased demand for (a) When two goods are complementary, increased demand for one will cause decreased demand for the other.one will cause decreased demand for the other.

(b) When two goods are complementary, increased demand for (b) When two goods are complementary, increased demand for one will cause increased demand for the other.one will cause increased demand for the other.

(c) If two goods are substitutes, increased demand for one will (c) If two goods are substitutes, increased demand for one will cause increased demand for the other.cause increased demand for the other.

(d) A drop in the price of one good will cause increased demand (d) A drop in the price of one good will cause increased demand for its substitute.for its substitute.

AnswerAnswer

(b) When two goods are complementary, (b) When two goods are complementary,

increased demand for one will causeincreased demand for one will cause

increased demand for the other.increased demand for the other.