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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

What is an Economic growth
Ayumo Reply
Economic growth is the process whereby the real per capita income of an economy increases over a long period of time.
what is the generally accepted defination of economics and by who
IDY Reply
Economics is defined by Lionel Robbins as a social science which studies human behaviour as a relationship between ends and scarce means which have alternative uses
Importance of economic
Achike Reply
Helps in decision making
I need like 5 importance
hellow dear.
it helps an individual in rational decision making process
Fine and u
how does it make individual in rational dicision making decisions
if an individual is faced with unlimited wants.
it also helps an individual in arranging their wants in order of their importance.
Hello guys
My name is Radah
Please what is a scale of preference used for?
it's use for arranging wants in order of their importance.
in other words when an individual is faced with unlimited wants,scale of preference would help the individual to select the most important wants.
what is tourism
forgive Reply
Tourism is travel for pleasure or business
It is the commercial organization and operation of holidays and visits to places of interest.
who is a price taker?
sam Reply
A price taker is a person or a company who have no control to dictate a prices of a goods or services
Someone who sets price
In the trading world, a price taker is a trader who does not affect the price of the stock if he or she buys or sells shares.
A price taker refers to a firm or an individual who sets the price of his good and services based on an external factor. In other words he cannot choose and set a price by himself. An example is a firm operating in perfect competition where prices are set through the price mechanism.
in a common and suitable sense state the law of diminishing returns
Unique Reply
The higher the satisfaction derived from a particular commodity,the lower the demand for it but that law doesn't match in some instances.
state the features of an imperfect competitive market
@NURENI instance like wat
imperfect competitive market involves large number of sellers and buyers price makers selling cost product differentiation free entry and exit of a firms
is economics a science
Alex Reply
yes. a social science.
Yes of cause It uses scientific principles in its research. That is to say, analyzing data, making experiment as well as making deductions and drawing conclusions
U can understand the scientific nature of economics by learning about the methods used by Abhijit Banerjee(indian) ,the nobel prize laureate 2019.
it is considered as a social science
Hence, economics is a science, a social science many can call it, or more appropriately, a young science
it can be called social science because of behaviour ,which is unpredictable.There r many theroies in economics which make economics a social science But some economic theories makes it science
human behaviour*
remember science derives from the root words "to know". With that being said most fields of study can be considered as a science or soft science, for they possess key knowledge to attaining understanding of our world.
economics is a science cos it deals with human wants, desire or neads in order to satisfy them
according comparision of political science economic is science.
what's the question?
Nureni Reply
Discuss economics system
Henry Reply
discuss institutional system
Give 3 at most advantages and disadvantages of economics system and institutional syatem
Give the features characteristics of market or free enterprise
The structure of an economy is largely determined by the economic system which is a function of the economic ideology of the nation
The economic system is grouped into 5 groups: 1: Pure market 2: Developed market 3: Centrally planned or Socialist 4: Mixed market and 5: Market Socialist Economic systems
what is inflation
Prince Reply
Inflation is a sustained and general rise in the price of all goods and services of an economy
hello everyone , I'm New here, third degree price discrimination?
Saeed Reply
2nd degree price discrimination?
price paid by consumers after the sales tax is called?
Pinias Reply
why government impose price floor on certain products?
how can black market be occurred when price ceiling is introduced?
How can inflation affect goods and services?
When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected
If inflation becomes too high the economy can suffer conversely, if inflation is controlled and at reasonable levels, the economy may prosper. With controlled, lower inflation, employment increases.
Is it necessary to make decision when it fails you
Evelin Reply
Pls when what fails u
I think so
well i might naught know what you on about but i gotta tell you, it is necessary
how can the demand side approach solve unemployment
Tshepiso Reply
demand solves unemployment when it is addressed with supply you can't just expect demand to work alone without supply the two are interconnected
You have to apply the concept of aggregate demand
That is apply demand side policies to boost aggregate demand hence increasing need for labour and decreasing unemployment(more people get jobs)
demand side approach to solve unemployment
Tshepiso Reply
no get ur questions

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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