Economics
Shifts in Demand
Shifts in demand refer to changes in the quantity of a good or service that consumers are willing and able to purchase at every price. These shifts are caused by factors such as changes in consumer preferences, income, population, and the prices of related goods. When demand shifts, the entire demand curve moves, leading to a new equilibrium price and quantity.
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12 Key excerpts on "Shifts in Demand"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
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 Figure 3.6. Figure 3.6 Demand Curve 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 Figure 3.7. Figure 3.7 Demand Curve with Income Increase 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 Figure 3.8. Chapter 3 | Demand and Supply 53 Figure 3.8 Demand Curve Shifted Right 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 Figure 3.9.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Other factors that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let’s look at these factors. Changing Tastes or Preferences From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef. Changes in the Composition of the Population The proportion of elderly citizens in the United States population is rising. It rose from 9.8% in 1970 to 12.6% in 2000, and will be a projected (by the U.S. Census Bureau) 20% of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve. Changes in the prices of related goods such as substitutes or complements also can affect the demand for a product. A 54 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12122/1.4
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Other factors that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let’s look at these factors. Changing Tastes or Preferences From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef. Changes in the Composition of the Population The proportion of elderly citizens in the United States population is rising. It rose from 9.8% in 1970 to 12.6% in 2000, and will be a projected (by the U.S. Census Bureau) 20% of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve. Changes in the prices of related goods such as substitutes or complements also can affect the demand for a product. A 54 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col23729/1.3
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
3.2 • Shifts in Demand and Supply for Goods and Services 63 FIGURE 3.15 Factors That Shift Supply Curves (a) A list of factors that can cause an increase in supply from S 0 to S 1 . (b) The same factors, if their direction is reversed, can cause a decrease in supply from S 0 to S 1 . Because demand and supply curves appear on a two-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into believing that economics is about only four topics: demand, supply, price, and quantity. However, demand and supply are really “umbrella” concepts: demand covers all the factors that affect demand, and supply covers all the factors that affect supply. We include factors other than price that affect demand and supply by using shifts in the demand or the supply curve. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a wide range of economic circumstances. 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process LEARNING OBJECTIVES By the end of this section, you will be able to: • Identify equilibrium price and quantity through the four-step process • Graph equilibrium price and quantity • Contrast shifts of demand or supply and movements along a demand or supply curve • Graph demand and supply curves, including equilibrium price and quantity, based on real-world examples Let’s begin this discussion with a single economic event. It might be an event that affects demand, like a change in income, population, tastes, prices of substitutes or complements, or expectations about future prices. It might be an event that affects supply, like a change in natural conditions, input prices, or technology, or government policies that affect production. How does this economic event affect equilibrium price and quantity? We will analyze this question using a four-step process. Step 1. Draw a demand and supply model before the economic change took place.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Other factors that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let’s look at these factors. Changing Tastes or Preferences From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef. Changes in the Composition of the Population The proportion of elderly citizens in the United States population is rising. It rose from 9.8% in 1970 to 12.6% in 2000, and will be a projected (by the U.S. Census Bureau) 20% of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve. Changes in the prices of related goods such as substitutes or complements also can affect the demand for a product. A 54 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12190/1.4
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
In other words, when income increases, the demand curve shifts to the left. Other Factors That Shift Demand Curves Income is not the only factor that causes a shift in demand. Other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let’s look at these factors. Changing Tastes or Preferences From 1980 to 2014, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef. Changes in the Composition of the Population The proportion of elderly citizens in the United States population is rising. It rose from 9.8% in 1970 to 12.6% in 2000, and will be a projected (by the U.S. Census Bureau) 20% of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve.
eBook - PDFMacroeconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
That wraps up our look at changes in demand. Before we turn to supply, you should remember the distinction between a movement along a given demand curve and a shift of a demand curve. A change in price, other things constant, causes a movement along a demand curve, changing the quantity demanded. A change in one of the determinants of demand other than price causes a shift of a demand curve, changing demand. tastes Consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve movement along a demand curve A change in quantity demanded resulting from a change in the price of the good, other things constant shift of a demand curve Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good C H E C K P O I N T Identify five changes that could shift a market demand curve to the right. 4-3 Supply Just as demand is a relation between price and quantity demanded, supply is a relation between price and quantity supplied. Supply indicates how much producers are willing and able to offer for sale per period at each possible price, other things constant. The law of supply states that the quantity supplied is usually directly related to its price, other things constant. Thus, the lower the price, the smaller the quantity supplied; the higher the price, the greater the quantity supplied. 4-3a Supply Schedule and Supply Curve Exhibit 3 presents the market supply schedule and the market supply curve S for pizza. Both show the quantities supplied per week at various possible prices by the thousands of pizza makers in the economy. As you can see, price and quantity supplied are directly, or positively, related. Producers have a profit incentive to offer more at a higher price than at a lower price, so the supply curve slopes upward. Here are two reasons why producers offer more for sale when the price rises.
eBook - PDFMicroeconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
That wraps up our look at changes in demand. Before we turn to supply, you should remember the distinction between a movement along a given demand curve and a shift of a demand curve . A change in price, other things constant, causes a movement along a demand curve, changing the quantity demanded. A change in one of the determinants of demand other than price causes a shift of a demand curve, changing demand. tastes Consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve movement along a demand curve A change in quantity demanded resulting from a change in the price of the good, other things constant shift of a demand curve Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good C H E C K P O I N T Identify five changes that could shift a market demand curve to the right. 4-3 Supply Just as demand is a relation between price and quantity demanded, supply is a relation between price and quantity supplied. Supply indicates how much producers are willing and able to offer for sale per period at each possible price, other things constant. The law of supply states that the quantity supplied is usually directly related to its price, other things constant. Thus, the lower the price, the smaller the quantity supplied; the higher the price, the greater the quantity supplied. 4-3a Supply Schedule and Supply Curve Exhibit 3 presents the market supply schedule and the market supply curve S for pizza. Both show the quantities supplied per week at various possible prices by the thousands of pizza makers in the economy. As you can see, price and quantity supplied are directly, or positively, related. Producers have a profit incentive to offer more at a higher price than at a lower price, so the supply curve slopes upward. Here are two reasons why producers offer more for sale when the price rises.
eBook - ePubMedia Economics
Applying Economics to New and Traditional Media
- Colin Hoskins, Stuart McFadyen, Adam Finn(Authors)
- 2004(Publication Date)
- SAGE Publications, Inc(Publisher)
A change in demand occurs when there is a change in the value of a determinant of demand other than own price. An increase in demand shifts the demand curve to the right and causes price and quantity to rise. A decrease in demand shifts the demand curve to the left and causes price and quantity to fall. Thus the change in price and quantity are in the same direction as the change in demand.Changes in demand are caused by a change in a determinant of demand, such as the price of a demand-related good, income per capita, the number of potential buyers, the expected future price, and consumer tastes.Demand-related goods are either substitutes or complements. A substitute is a good that fulfils the same need. The cross elasticity of demand, defined as (percentage change in demand for product X) / (percentage change in the price of Z), is positive if X and Z are substitutes. Complementary goods are those that are used in conjunction with one another. The cross elasticity of demand for complementary goods is negative.Demand is positively related to income per capita for normal goods and negatively related for inferior goods. Income elasticity of demand, defined as (percentage change in demand) / (percentage change in income) is thus positive for normal goods and negative for inferior goods.A change in supply occurs when there is a change in a determinant of supply other than own price. Whatever direction supply changes, the equilibrium quantity changes in the same direction and the equilibrium price changes in the opposite direction.A change in supply is typically caused by a change in an input price, technology, or the number of suppliers.There are a host of applications of supply and demand analysis and of the elasticity concept in the media industries. Those examined in this chapter included the effect of permitting the BBC to advertise, the Principle of Relative Constancy, the recent trend to auction the electromagnetic spectrum, and the market for subsidies.
eBook - PDFEconomics
Principles & Policy
- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 70 Part 1 Getting Acquainted with Economics Many outside forces can disturb the equilibrium in a market by shifting the demand curve or the supply curve, either temporarily or permanently. Between 2006 and 2009, for example, U.S. home prices fell by roughly 30 percent because an oversupply of unsold homes, coupled with the larger effect of the economic crisis of 2007–2009, shifted the real estate demand curve downward. 7 In the fall of 2010, heavy rains ruined the napa cabbage crop in South Korea, shifting the supply curve downward and quadrupling prices of napa cabbage—the essential ingredient in kimchi, a staple of most Koreans’ diets. 8 Today, the increasing popularity of tequila has led to a shortage of agave, the plant used to make it, driving up the prices of both agave and tequila. 9 Such outside influences change the equi- librium price and quantity. If you look again at Figures 8 and 9, you can see clearly that any event that causes either the demand curve or the supply curve to shift will also change the equilibrium price and quantity. 4-6a Application: Who Really Pays That Tax? Supply-and-demand analysis offers insights that may not be readily apparent. Here is an example. Suppose your state legislature raises the gasoline tax by 10 cents per gallon. Service station operators will then have to pay 10 additional cents in taxes on every gallon they pump. They will consider this higher tax as an addition to their costs and will pass it on to you and other drivers by raising the price of gas by 10 cents per gallon.
eBook - PDF- Colin Harbury(Author)
- 2014(Publication Date)
- Pergamon(Publisher)
This may be explained in two ways. First, as price falls, the number of persons entering the market as purchasers tends to increase. Second, as price falls, there is a tendency for each individual consumer to demand more. The second reason is related to the principle of DIMINISHING MARGINAL UTILITY. Consumers are considered to derive satisfaction (or utility) from a good, though it is not pretended that this may be precisely measured. As their consumption of the good in a given period of time rises, the extra or MARGINAL UTILITY realized from consuming an additional unit of it tends to fall. A drop in price is in a sense, therefore, necessary to induce additional consumption. The principle just referred to rests upon the assumption of ceteris paribus (other things remaining equal). Moreover, a demand curve itself is drawn upon ceteris paribus assumptions (the CONDITIONS OF DEMAND) that all influences upon demand other than price are unchanged. For the quantity demanded is deter-mined not by price alone but by many additional factors. The most important 'other' influences are the prices of other goods (which may be substitutes or complements), expectations about future prices, incomes (both size and distribution), the population, weather, tastes, etc., which may be important in particular cases. These influences are assumed to be held constant when a demand curve is constructed in order to allow for the separate consideration of each of them. When any one (or more) such influence changes there is a shift of the whole demand curve. This must be distinguished from move-ments along the curve — sometimes known as EXTENSIONS or CONTRACTIONS of demand, which refer to changes 13 14 Chapter 2 in demand induced by changes in price. A consumer is assumed to try to allocate his income in such a way as to maximize his satisfaction, at which point he is said to be in equilibrium.
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
Sellers could have decreased the supply because of increased wage, equipment, or liability insurance costs. In summary, an increase in supply means that a larger quantity of a product is made available for sale at each price, causing the supply curve to shift to the right. A decrease in supply means that a smaller quantity is made available for sale at each price, causing the supply curve to shift to the left. Application 3.2, “Fads: Some In, Some Out,” shows how nonprice factors influence the demand and supply of some items. Changes in Quantity Demanded or Supplied and Changes in Demand or Supply: A Crucial Distinction Be warned: We must maintain clear distinctions between changes in quantity demanded and quantity supplied and changes in demand and supply. Although the terms are similar, they refer to completely different concepts. Changes in quantity demanded and quantity supplied arise only from changes in a product’s price. Quantity is a variable tied to price. We illustrate the responses to price changes by movements along fixed demand or supply curves from one price– quantity combination to another. For example, the movement along the demand curve in Figure 3.7a from $20 and 100 units to $10 and 150 units illustrates an increase in quantity demanded caused by a decrease in price. The movement along the supply Decrease in Supply A change in a nonprice influence on supply causes less of a product to be supplied at each price; the supply curve shifts to the left. 68 Chapter 3 Demand, Supply, and Price Determination FIGURE 3.7 Changes in Quantity Demanded and Quantity Supplied versus Changes in Demand and Supply Price a. Increase in Quantity Demanded Price b. Decrease in Quantity Supplied Changes in Quantity Demanded and Quantity Supplied 50 0 Quantity 100 150 D S 200 50 0 Quantity 100 150 200 50 0 Quantity Price 100 150 S1 S1 S2 S2 D1 D2 200 c. Increase in Demand 50 0 Quantity Price 100 150 200 d.
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