<< Chapter < Page Chapter >> Page >

Changes in Expectations about Future Prices or Other Factors that Affect Demand

While it is clear that the price of a good affects the quantity demanded, it is also true that expectations about the future price (or expectations about tastes and preferences, income, and so on) can affect demand. For example, if people hear that a hurricane is coming, they may rush to the store to buy flashlight batteries and bottled water. If people learn that the price of a good like coffee is likely to rise in the future, they may head for the store to stock up on coffee now. These changes in demand are shown as shifts in the curve. Therefore, a shift in demand    happens when a change in some economic factor (other than price) causes a different quantity to be demanded at every price. The following Work It Out feature shows how this happens.

Shift in demand

A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. Following is an example of a shift in demand due to an income increase.

Step 1. Draw the graph of a demand curve for a normal good like pizza. Pick a price (like P 0 ). Identify the corresponding Q 0 . An example is shown in [link] .

Demand curve

The graph represents the directions for step 1.A demand curve shows how much consumers would be willing to buy at any given price.
The demand curve can be used to identify how much consumers would buy at any given price.

Step 2. Suppose income increases. As a result of the change, are consumers going to buy more or less pizza? The answer is more. Draw a dotted horizontal line from the chosen price, through the original quantity demanded, to the new point with the new Q 1 . Draw a dotted vertical line down to the horizontal axis and label the new Q 1 . An example is provided in [link] .

Demand curve with income increase

The graph represents the directions for step 2. With an increased income, consumers will wish to buy a higher quantity (Q sub 1) than they bought with a lower income.
With an increase in income, consumers will purchase larger quantities, pushing demand to the right.

Step 3. Now, shift the curve through the new point. You will see that an increase in income causes an upward (or rightward) shift in the demand curve, so that at any price the quantities demanded will be higher, as shown in [link] .

Demand curve shifted right

The graph represents the directions for step 3. An increased income results in an increase in demand, which is shown by a rightward shift in the demand curve.
With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.

Summing up factors that change demand

Six factors that can shift demand curves are summarized in [link] . The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease in demand. Notice that a change in the price of the good or service itself is not listed among the factors that can shift a demand curve. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

Factors that shift demand curves

The graph on the left lists events that could lead to increased demand. The graph on the right lists events that could lead to decreased demand.
(a) A list of factors that can cause an increase in demand from D 0 to D 1 . (b) The same factors, if their direction is reversed, can cause a decrease in demand from D 0 to D 1 .

When a demand curve shifts, it will then intersect with a given supply curve at a different equilibrium price and quantity. We are, however, getting ahead of our story. Before discussing how changes in demand can affect equilibrium price and quantity, we first need to discuss shifts in supply curves.

Questions & Answers

the diagram of the digestive system
Assiatu Reply
How does twins formed
William Reply
They formed in two ways first when one sperm and one egg are splited by mitosis or two sperm and two eggs join together
Oluwatobi
what is genetics
Josephine Reply
Genetics is the study of heredity
Misack
how does twins formed?
Misack
What is manual
Hassan Reply
discuss biological phenomenon and provide pieces of evidence to show that it was responsible for the formation of eukaryotic organelles
Joseph Reply
what is biology
Yousuf Reply
the study of living organisms and their interactions with one another and their environments
AI-Robot
the study of living organisms and their interactions with one another and their environment.
Wine
discuss the biological phenomenon and provide pieces of evidence to show that it was responsible for the formation of eukaryotic organelles in an essay form
Joseph Reply
what is the blood cells
Shaker Reply
list any five characteristics of the blood cells
Shaker
lack electricity and its more savely than electronic microscope because its naturally by using of light
Abdullahi Reply
advantage of electronic microscope is easily and clearly while disadvantage is dangerous because its electronic. advantage of light microscope is savely and naturally by sun while disadvantage is not easily,means its not sharp and not clear
Abdullahi
cell theory state that every organisms composed of one or more cell,cell is the basic unit of life
Abdullahi
is like gone fail us
DENG
cells is the basic structure and functions of all living things
Ramadan
What is classification
ISCONT Reply
is organisms that are similar into groups called tara
Yamosa
in what situation (s) would be the use of a scanning electron microscope be ideal and why?
Kenna Reply
A scanning electron microscope (SEM) is ideal for situations requiring high-resolution imaging of surfaces. It is commonly used in materials science, biology, and geology to examine the topography and composition of samples at a nanoscale level. SEM is particularly useful for studying fine details,
Hilary
cell is the building block of life.
Condoleezza Reply
what is cell divisoin?
Aron Reply
Diversity of living thing
ISCONT
what is cell division
Aron Reply
Cell division is the process by which a single cell divides into two or more daughter cells. It is a fundamental process in all living organisms and is essential for growth, development, and reproduction. Cell division can occur through either mitosis or meiosis.
AI-Robot
What is life?
Allison Reply
life is defined as any system capable of performing functions such as eating, metabolizing,excreting,breathing,moving,Growing,reproducing,and responding to external stimuli.
Mohamed
Got questions? Join the online conversation and get instant answers!
Jobilize.com Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask