Shifting Demand - Video Tutorials & Practice Problems
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Shifting Demand - Warning!
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Alright. So now we're going to discuss some of the things that can cause demand to change. So if there's gonna be certain events that cause shifts in our graph, our demand line might move from where it originally was. And I want to make a big bold warning right quick that a change in price is not going to shift the demand curve. We're only going to move along the demand curve, not shift and draw a whole new curve. Cool. So let's let me show you an example on these graphs real quick. So we've got um on the left, we're going to discuss a change in price. And on the right, we're going to talk about other determinants of demand. When I say determinant, it's some thing that determines demand, right? What makes demand, what it is. It's other factors that we're going to discuss. These other things that happen in the background. But first let's talk about this change in price. So remember first things first let's label our axis. We've got price here and quantity here, right, alphabetical order, PQ left to right, Okay. And let's go ahead. And just without without numbers, we are going to use um some terminology here that I put in the middle P. One and Q. One when we use this P. One. And cue on that that means we're that's the original situation and then P. Two. And cute is what happened after we made the change. So let me show you on the graph what I mean by that. So let's say we started here on the graph. He's read um at this point right here where we demanded quantity, one at a price of P one right? Whatever price that was and whatever quantity that was. We're gonna do a lot of our analysis like this without numbers. Um So we started at that price but let's say the price increased here to P. Two. Nothing else changed, Remember Citrus paradise? Nothing changed here except the price. So what's gonna happen? We're at this new price here and this new quantity here, right? We didn't draw a new demand curve. All that happened was there was this decrease in quantity demanded? So the quantity demanded decreased because the price increased. Right? So this is a distinction that we're trying to make and I'm trying to make clear to you right now that there's gonna be a difference when we have a change in price rather than a change in one of these other determinants. And we're gonna discuss every determinant in detail coming up. But as an example let's say consumer income change, right? Or even easier preferences, let's say that consumers prefer this. Good now they rather have this good to something else and we're gonna discuss that in more detail. But let's say they want this good more we're gonna shift this graph to the right, okay we're gonna have this new notice. I drew a new demand curve here and this is an increase in. Let me do it. Yeah I like this. It's gonna have this one in blue and the other one in red. Um So this is an increase in an increase in demand, not an increase in quantity demanded because notice the price isn't what's changing here, Something else other than price is changing. So let's say we were at this price right here again let's label our axes P. And Q. Were at this price P. One. And we were at this quantity demanded Q1. And notice not the price didn't change here. But what happened is now excuse me at the same price, I want to go the other way on the graph at this same price our quantity demanded is much higher. Right? So over here on the left hand side um on the left hand side we had a change in the price and a change in the quantity demanded right here noticed the price stayed the same but the quantity demanded went way up at that price. You understand? So it's because we have a new demand curve that we drew. So we had here we'll call this D. One for the first demand curve and D. Two for the second demand curve. Right? So notice in this situation we drew a new curve. So it's an increase or decrease in demand. Kids get this wrong all the time. Right? This is a huge confusion point. Uh for a lot of students so just take a second to hammer this in and you might even want to come back to this lesson after you understand all the changes in demand. But I did want to point this out first, just so you have it in your head and I have this point at the bottom here. All else equal. All else not equal, Right? So here in the change in price, everything else is staying the same. The only thing that's changing is price, right? And we're affecting our price. So we're affecting our quantity demand. And here um I just wanted to make a point that we are still holding our paradise conditions even on the right where I have all else not equal. The idea is everything else is staying equal. Except this one thing that's changing, we're still holding everything else equal. So para still holds in this case, there's just one thing that's changing, such as the income of the consumer or the preferences of the consumer, something like that. Cool, Alright, so I'm gonna end this video right now, and then we will continue on the bottom of the page. Let's do it
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Shifting Right and Shifting Left
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All right, so let's continue here. Um One more note I want to make about when we're shifting, we're either gonna shift to the right or to the left on the graph. Okay. And I like to think of it because a lot of this when we're looking at these shifts, a lot of it is very logical and you just kinda have to think about, is it a good thing that's happening for the product or a bad thing that's happening for the product? Right? When you think of it like that, I think it makes it a little easier to know whether you should shift right or left. So you shift right when it's a good thing, something good happen, we're gonna shift to the right. Okay, so we would have something like this, let me go to blue, we would have our new demand curve shifting to the right, we would shift to the right here. Cool, I'll do that in a different color. Alright and when we have a bad thing happened for the product, something unfavorable for the product, we're gonna shift to the left, so we'll have our new demand curve out here. Cool. Um So we will have from there we go this way this time. Alright and we've shifted to the left. That's the only note I wanted to make here, I'll just get out of the way. So you see that text. Um Yeah, so let's try and think of it as good things and bad things. So good things are gonna shift to the right, bad things to the left. Cool. Let's go ahead and try that in our first example here.
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Consumer Income:Normal Goods and Inferior Goods
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so a factor that could cause demand to shift for a product is the income of the consumer, let's check it out. So as a consumer's income changes, the types of goods that they buy are also gonna change. So let's think about when you're living back at mom's house, right? You come home, have a nice steak dinner, right? Go to bed in a nice queen sized bed, life was good, queen sized queen size bed and now you're in a dorm room. What do you got here? Ramen noodles every night? And I'm assuming this is where I picture you. I'm assuming you're all just like sharing bunk beds with strangers right now with strangers, right? Kind of a downgrade from mom's house. But you'll see that the types of goods here are different, right? Mom's house. We could say the things were a little better. So let's go ahead and define what those are. Um, so we'll say that people buy more what are called normal goods when they have more money and just the opposite people buy more inferior goods when they have less money. So you can kind of follow the logic here. Right? So normal goods could be things like what you had at mom's house or what I've listed here, we've got organic food, new furniture or even going on vacation. We could count as a normal good when we compare it to these inferior goods, like buying a canned soup or buying used furniture off craigslist or a staycation where you just take your days off and just stay home because you've got no money. Cool. So that's the idea here. We're gonna have our normal goods and are inferior goods. And when we think of the consumer income, if that changes, we got to think is our product a normal good or an inferior good? And how is this income change going to affect the demand for the product? I've got an example coming up, Let's try it out.
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example
Consumer Income
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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 one at a time. And I want to make a quick point here about these types of problems. They're gonna generally have to tell you whether a product is a normal good or an inferior good because that'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? So 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 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 in that habit. We got a price on our on our Y. Axis and quantity on our X. Axis, right, alphabetical order left to right. And we're gonna draw our new demand curve. Um Right here let's go ahead and draw it as income increases. Remember normal good demand is gonna increase because of the income increase. So I'm gonna draw a new demand curve out here and we'll call that D. Two. So we've got this one was the one over here and this will be d to our ship 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. one. 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 too. Right? So it increased from quantity 12 quantity too at that same price. And that's because income increased and normal good demand increases with income increases. Alright let's look at the opposite, I'm gonna get out of the way here. So if income decreases and beers craft beers 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 gonna 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. Um So I don't see why there's a problem with that, especially when we got no numbers. So there we go. That is our shift to the left where we had demand curve here, demand one and now we are in demand, too, because income is lower and we see the same thing happening right? We've got the same price. Let's say this is our price right here and notice what happened. We were originally demanding about this much quantity one, but now we're over here demanding this much at the same price quantity, too. 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.
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Consumer Expectations
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now let's see how consumer expectations about future prices can affect the demand for a good today. So, um if consumers are expecting prices to increase in the future, then you can expect them to want to buy the thing today at a cheaper price. Right? So the demand for the good today is going to increase. You stick to read here, it's gonna increase. Right? So here we have a directly proportional relationship, right? They're both going up together, the future, expected prices going up and the demand is going up right? And notice again, this one's a little tricky because we are talking about prices of our product, but it is not a change in the price, right? Because the price didn't change, the price didn't change. It's only the expectations about the price that change. So again, we've got another little technicality here, but it's not the price changing. We're just expecting a different price in the future. Cool. So here's some examples of things that could change customer expectations. Consumer expectations. Um So the first one here being inclement weather. So if there's gonna be some sort of, they, they hear of some sort of, you know, shortage of a product because the hurricane or because there's been a dry spell or whatever. Um you could expect them to kind of panic and want to buy more of it now before there's some sort of shortage in the future. Right? So that would increase the demand now about future income. So a lot of people count their eggs before they hatch right there, Like, hey, I'm getting a raise next year. so maybe I could spend a little more now. Yeah Not the best logic but it still holds true in practice. And another one here just expected price changes in general. How about the release I like this one. How about the release of a new iPhone? Right so let's say you were about to go by like the latest iPhone 12 or whatever it is and um you just heard that Apple is going to be putting out iPhone 13. Well then if you really want an iPhone 12, you'll probably wait till iPhone 13 comes up because you're expecting the price of iPhone 12 to go down. So you'll wait and not demand an iPhone 12 today and get it once the price decreases. Alright so let's go ahead and try an example here.
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example
Consumer Expectations
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All right so let's try this example here as a hurricane approaches, brazil, Fear of a shortage of coffee spreads. What happens to the demand for coffee beans? So hurricane I don't even know if brazil gets hurricanes but you know whatever the idea here is that consumers are going to be expecting the price to increase right there. Fear of a shortage of coffee. They're expecting price the future price of coffee to be higher. Right? So so we're gonna say um expected put E. X. Price up. That means the demand now is gonna go up right? People are gonna want to buy it now because they're expecting it to be more expensive in the future. So this is a good thing for our demand right? Because they want to buy more of it now. So we are going to shift it to the right. Cool. So our demand curve moved from D. One here to D. Two. Price access quantity axis. Cool. So that's pretty simple. It's pretty straightforward one. Um Just their expected future price increase so they're gonna want to buy more of it now. Alright great. Let's move on.
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Number of Consumers
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Now let's see how the number of consumers in a market can affect demand. So this one's pretty straightforward. If the amount of consumers in a market increases, then the demand for a good is going to increase as well. Right? So there's just more people that want to buy it, then the demand is going to increase, right? There's just more people buying it. So here we see a directly proportional relationship as well, right? We've got the amount of customers increasing and the demand also increasing. So here's some good examples of how the number of consumers could change. We could have immigration, right? If immigration is happening to our country, we're going to see a rise in our population rise in the number of consumers, same with birth rate, right? If there's an increased birth rate, there's gonna be more consumers or decreased birth rate, less consumers. Right? And the last one here pretty interesting is the effects of advertising. So advertising can go ahead and take someone who was not a consumer of your product, right? They had no demand for your product, you advertise to them and now they do demand your product. So you're actually bringing, bringing in consumers to your product that before didn't want to buy it. So advertising is another thing that could increase the number of consumers in a market. Alright, let's go ahead and do an example
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example
Number of Consumers
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Alright, so let's check out this example after clutch Topia introduced its free pizza for everybody. Policy immigration to the awesome country skyrocketed, doubling its population. What happens to the demand for bar soap and clutch Topia? So it seems kind of random, but the idea here is there's more consumers, right? The population of clutch Topia doubled. So you can imagine that people are gonna be buying more bar soap just because there's more people there. So you're seeing the number of consumers increasing, Therefore the demand is increasing. So there's more consumers, the demand is going to increase. Alright, so this was D1 right here, our price and quantity axes in alphabetical order. And let's go ahead and shift this demand curve. Right? So which way are we gonna shift? This was a good thing for bar soap, right? The number of consumers increased for bar soap. So it's a good thing for bar soap. Let's go ahead and draw this graph to the right. So we have shifted to the right here to demand too, and you can see that we've moved to the right. Cool, pretty easy. Right? This one is easy, it's straightforward. Number of consumers goes up. The demand is gonna go up. Alright, cool. Let's move on
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example
Demand Shift Summary
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Alright, so last I included this summary sheet that includes all the shifts in demand that we've covered so far as well as information about changes in price. So first I've listed all of the ones that are directly proportional. That means that the determinant is going to go up as well as the demand is going to go up. And it makes this neat little akron. I'm here in spec I know some of you do well with acronyms and stuff like that. So I included it in here, although I would really think that it's better to focus on the logic and the intuition when it comes to deciding which way things are going to shift. Um But nonetheless, this could be helpful for you as well. So I included it in here. So here we've got all our directly proportional shifts income and normal goods, right? So if consumer income rises, demand for normal good rises uh substitute products. If the price of a substitute goes up, the demand for our good is gonna go up, preferences for a good. So if the preferences if consumers prefer this good, for some reason, the demand for that good is going to increase consumer expectations. So if the expected future price in the consumer's mind is gonna be higher, then they're gonna demand the good now more. So you're gonna see an increase in current demand there. And lastly, the number of consumers, so if you see the number of consumers in the market go up, you're also gonna see the demand for that product go up next. Let's cover these inversely proportional ones We've got um This one. Unfortunately, there's only two, so I couldn't really make an acronym here. Um But that's why there's only two. It should be easy to remember. So we've got income with inferior goods. So when consumer income rises, demand for inferior goods is gonna fall, right? And compliments. When the price of a compliment goes up, a complementary product, then the demand for our good is gonna fall. And last I wanted to include this note about changes in price. Remember when we have a change in price, it's only going to change the quantity demanded, right? We're not going to draw a new demand curve. I know you see two curves there fore shadowing a little bit. The other one's gonna be the supply curve, and we're gonna get into that in a minute. But what you see here is that we've moved on the demand curve, say, from this point here in the middle, we've moved up to that other point. Okay, So we've only moved along the line and not drawn an entirely new demand curve. Alright, cool. So, I hope this sheet is really valuable to you and I think you should use it, especially while you're still getting comfortable with the shifts while you're doing practice problems. Try and use this sheet to help you guide to the correct answers. Cool. Alright. One more thing. You see all this empty space here on the right side of the page. I wonder what's gonna fill that up later? We'll have to see. All right, let's go.
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Problem
Problem
What happens in the market for blenders if consumers decide that juicing their vegetables is better than blending their vegetables?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
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Problem
Problem
What happens in the market for beef jerky if customers expect a price increase in the future?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
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Problem
Problem
If cheese in a can is an inferior good, what happens to its market when consumer income increases?