Alright, let's see this example. If craft beer is a normal good, what happens to demand when consumer income rises? What if it decreases? So let's handle these 1 at a time, and I want to make a quick point here about these types of problems. They're going to generally have to tell you whether a product is a normal good or an inferior good because it's kind of hard to assume that you would be able to guess on the test. So, I would expect on the test; they're going to be telling you when things are normal goods and inferior goods. Alright. So in this question, they do tell us that craft beer is a normal good, and what happens to normal goods when income rises, right? When income rises, we buy more normal goods. So the income rising causes the demand to shift to the right. It's a good thing, right? Income rising is a good thing for a normal good. That's how I like to think about it. So, the increased income is going to increase our demand. So let's go ahead and label our axis here. I just want to get into that habit. We got our price on our y-axis and quantity on our x-axis, right, alphabetical order left to right, and we are going to draw our new demand curve right here. Let's go ahead and draw it as income increases. Remember, normal good demand is going to increase because of the income increase. So, I'm going to draw a new demand curve out here, and we'll call that d2. So, we've got this one was d1 over here, and this will be d2, our shift to the right. Right. And what does this mean? This means that at a certain price, if I were to say our price was right here, p 1. Remember, the price isn't changing; it's the people's demand that's changing here. So at the same price, we're actually demanding a higher quantity, right? This was where we were originally demanding and now we're demanding somewhere out here at quantity 2, right. So it increased from quantity 1 to quantity 2 at that same price. Cool, and that's because income increased and normal good demand increases with income increases. Alright. Let's look at the opposite. I'm going to get out of the way here. So if income decreases and beer is craft beer is a normal good, right, so we gotta think. People buy more normal goods when they have more money; they have less money now, so they're going to buy less normal goods. So, we are going to draw a new demand curve here to the left of our original one, and when you draw them, especially when we don't have numbers, and stuff, I don't mind going out of the graph like that just to keep it consistent, you know, keep them even. So I don't see why there's a problem with that, especially when we've got no numbers. So there we go. That is our shift to the left where we had a demand curve here, demand 1, and now we are in demand 2 because income is lower, And we see the same thing happening, right? We've got the same price. Let's say this was our price right here, and notice what happened. We were originally demanding about this much, quantity 1, but now we're over here demanding this much at the same price, quantity 2. So we're demanding much less at the same price. Cool. So that is how income, consumer income, can affect the demand for a good based on it being a normal good or an inferior good. Cool. Let's move on now.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
3. Supply and Demand
Shifting Demand
Video duration:
3mPlay a video:
Related Videos
Related Practice