Demand Curve Shifts
… a core concept in Economic Analysis
An increase in demand means an increase in quantity demanded at every giver price, or equivalently, an increase in the maximum willingness to pay for each given quantity. (See Tyler Cowen, reference below and video to right.)
In his lesson video, Tyler Cowen, explores “demand shifters” – factors that would cause an increase or decrease in the quantity demanded at a given price or increase or decrease the maximum willingness to pay for a given quantity:
- Income – where the effect of changes in income on demand depends on the nature of the good in question (see Normal Good vs. Inferior Good)
- Population – e.g., as the average population ages the demand curve for cancer drugs and retirement homes shifts to the right
- Price of Substitutes – e.g., if Nike lowers its price for tennis shoes more people will by Nike shoes and the demand curve for Reebok tennis shows will shift to the left
- Price of Complements – e.g., if the price of hot dogs goes down, more people will buy hot doges and the demand curve for hot dog buns will shift to the right
- Expectations – The expectation of a higher (lower) price for a good in the future increases (decreases) current demand for the good because consumers will adjust their current spending in anticipation of the direction of future prices in order to obtain the lowest possible price. Cowen observes that Apple does not want consumers to know too far in advance when an new iPhone is coming out because consumers will stop buying the current version.
- Tastes – which vary with individuals, seasons and fads. Cowen uses the example of the Atkins Diet craze and the effect on demand curves for red meat and for bread during the height of the fad and when Atkins’ heart attack ended the fad.
MRU practice questions
See http://www.mruniversity.com/node/179639, accessed 20 April 2016:
- When the price of Apple computers goes down, what probably happens to the demand for Windows-based computers?
Tyler Cowen, The Demand Curve Shifts, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-shifts, accessed 20 April 2016.
Atlas topic and subject
Page created by: Ian Clark, last modified on 20 April 2016.
Image: Minute 1.37 of MRU Video, at http://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-shifts, accessed 20 April 2016.