{"id":11154,"date":"2017-04-17T20:05:49","date_gmt":"2017-04-17T20:05:49","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/introbusinesswmopen2\/?post_type=chapter&#038;p=11154"},"modified":"2017-07-18T20:19:42","modified_gmt":"2017-07-18T20:19:42","slug":"the-law-of-demand","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/chapter\/the-law-of-demand\/","title":{"raw":"The Law of Demand","rendered":"The Law of Demand"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Explain the law of demand<\/li>\r\n \t<li>Explain a demand curve<\/li>\r\n \t<li>Explain the factors that can change\u00a0demand<\/li>\r\n<\/ul>\r\n<\/div>\r\nhttps:\/\/youtu.be\/uXlZIn6W7Ew?t=1s\r\n\r\nThe law of demand states that, other things\u00a0being equal,\r\n<ul>\r\n \t<li>More of a good will be bought the lower its price<\/li>\r\n \t<li>Less of a good will be bought the higher its price<\/li>\r\n<\/ul>\r\n<em>Ceteris paribus<\/em> means \"other things being equal.\"\r\n<h2>What Is Demand?<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/23224253\/6395014081_3b14ed32bc_b.jpg\" rel=\"attachment wp-att-5595\"><img class=\"wp-image-5595 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162939\/6395014081_3b14ed32bc_b-1024x819.jpg\" alt=\"Photo of a small red and white gas station and gas pump.\" width=\"600\" height=\"480\" \/><\/a>\r\n<h3>Demand for Goods and Services<\/h3>\r\nEconomists use the term <strong>demand<\/strong>\u00a0to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants\u2014a consumer may be able to differentiate between a need and a want, but from an economist's perspective, they are the same thing. Demand is also based on ability to pay. If you can't\u00a0pay for it, you have no effective demand.\r\n\r\nWhat a buyer pays for a unit of the specific good or service is called the\u00a0<strong>price<\/strong>. The total number of units purchased at that price is called the <strong>quantity demanded<\/strong>. A rise in the price of a good or service almost always decreases the quantity of that good or service demanded. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the <strong>law of demand<\/strong>. The law of demand assumes that all other variables that affect demand are held constant.\r\n<div class=\"linkitup\">\r\n\r\nAn example from the market for gasoline can be shown in the form of a table or a graph. (Refer back to \"Reading: Creating and Interpreting Graphs\" in chapter 0 if you need a refresher on graphs.) A table that shows the quantity demanded at each price, such as Table 1, is called a <strong>demand schedule<\/strong>. Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country).\r\n\r\n<span class=\"cnx-gentext-caption cnx-gentext-t\">Table <\/span><span class=\"cnx-gentext-caption cnx-gentext-n\">1. <\/span>Price and Quantity Demanded of Gasoline\r\n<table>\r\n<thead>\r\n<tr>\r\n<th>Price (per gallon)<\/th>\r\n<th>Quantity Demanded (millions of gallons)<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>$1.00<\/td>\r\n<td>800<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.20<\/td>\r\n<td>700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.40<\/td>\r\n<td>600<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.60<\/td>\r\n<td>550<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.80<\/td>\r\n<td>500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.00<\/td>\r\n<td>460<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.20<\/td>\r\n<td>420<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nA <strong>demand curve<\/strong> shows the relationship between price and quantity demanded on a graph like Figure 1, below, with quantity on the horizontal axis and the price per gallon on the vertical axis. <em>Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is different from\u00a0math!<\/em>\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"585\"]<img src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162942\/CNX_Econ_C03_0011.jpg\" alt=\"The graph shows a downward-sloping demand curve that represents the law of demand.\" width=\"585\" height=\"313\" \/> <strong>Figure 1. A Demand Curve for Gasoline<\/strong>[\/caption]\r\n\r\nThe demand schedule (Table 1) shows that as price rises, quantity demanded decreases, and vice versa. These points can then be\u00a0graphed, and the line connecting them is the demand curve (shown by line D in the graph, above). The downward slope of the demand curve again illustrates the law of demand\u2014the inverse relationship between prices and quantity demanded.\r\n\r\nThe demand schedule shown by Table 1 and the demand curve shown by the graph in Figure 1 are two ways of describing the same relationship between price and quantity demanded.\r\n\r\n<\/div>\r\nDemand curves will look\u00a0somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. In this way, demand curves embody the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases.\r\n<h3>Demand vs. Quantity Demanded<\/h3>\r\nIn economic terminology, <em>demand<\/em> is not the same as <em>quantity demanded<\/em>. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.\r\n<h2>Change in Demand vs. Change in Quantity Demanded<\/h2>\r\nhttps:\/\/youtu.be\/aTSwcXJ700c\r\n\r\nA change in price does not move the demand curve. It only shows a difference in the quantity demanded.\r\n\r\nThe demand curve will move left or right when there is an underlying change in demand at all prices.\r\n<h2>Factors Affecting Demand<\/h2>\r\n<h2><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24175403\/15636059197_26b56acdd1_k.jpg\" rel=\"attachment wp-att-5613\"><img class=\"wp-image-5613 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162945\/15636059197_26b56acdd1_k-1024x678.jpg\" alt=\"15636059197_26b56acdd1_k\" width=\"602\" height=\"398\" \/><\/a><\/h2>\r\n<h3>Introduction<\/h3>\r\nWe defined demand as the amount of some product that a consumer is <em>willing<\/em> and <em>able<\/em> to purchase at each <em>price<\/em>. This suggests at least two factors, in addition to price, that affect demand. \"Willingness to purchase\" suggests a desire to buy, and it depends on what economists call tastes and preferences. If you neither need nor want something, you won't be willing to buy it. \"Ability to purchase\" suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. The prices of related goods can also affect demand. If you need a new car, for example, the price of a Honda may affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their demand for car insurance and the less for diapers and baby formula.\r\n\r\nThese factors matter both for demand by an individual and demand by the market as a whole. Exactly how do these various factors affect demand, and how do we show the effects graphically? To answer those questions, we need the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption.\r\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">The <em>Ceteris Paribus<\/em> Assumption<\/span><\/h3>\r\nA\u00a0<em data-redactor-tag=\"em\">demand curve<\/em> or a <em>supply curve<\/em>\u00a0(which we'll cover later in this chapter) is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product's price, are changing. Economists call this assumption\u00a0<strong><em>ceteris paribus<\/em><\/strong>, a Latin phrase meaning \"other things being equal.\" Any given demand or supply curve is based on the <span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption that all else is held equal. (You'll recall that economists use the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption to simplify the focus of analysis.) Therefore, a demand curve or a supply curve is a relationship between two, and only two, variables <em>when all other variables are held equal<\/em>. If all else is not held equal, then the laws of supply and demand will not necessarily hold.\r\n\r\n<em><span class=\"emphasis\" data-redactor-tag=\"span\">Ceteris paribus<\/span> <\/em>is typically applied when we look at how changes in price affect demand or supply, but\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> can also be applied more generally. In the real world, demand and supply depend on more factors than just price. For example, a consumer's demand depends on income, and a producer's supply depends on the cost of producing the product. How can we analyze the effect on demand or supply if multiple factors are changing at the same time\u2014say price rises and income falls? The answer is that we examine the changes one at a time, and assume that the other factors are held constant.\r\n\r\nFor example, we can say that an increase in the price reduces the amount consumers will buy (assuming income, and anything else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to buy (assuming price, and anything else that affects demand, is unchanged). This is what the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption really means. In this particular case, after we analyze each factor separately, we can combine the results. The amount consumers buy falls for two reasons: first because of the higher price and second because of the lower income.\r\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">The Effect of Income on Demand<\/span><\/h3>\r\nLet's use income as an example of how factors other than price affect demand. Figure 1 shows the initial demand for automobiles as D<sub>0<\/sub>. At point Q, for example, if the price is $20,000 per car, the quantity of cars demanded is 18 million. D<sub>0<\/sub> also shows how the quantity of cars demanded would change as a result of a higher or lower price. For example, if the price of a car rose to $22,000, the quantity demanded would decrease to 17 million, at point R.\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"534\"]<img src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162947\/CNX_Econ_C03_0041.jpg\" alt=\"The graph shows demand curve D sub 0 as the original demand curve. Demand curve D sub 1 represents a shift based on increased income. Demand curve D sub 2 represents a shift based on decreased income.\" width=\"534\" height=\"342\" \/> <strong>Figure 1. Shifts in Demand: A Car Example<\/strong>[\/caption]\r\n\r\nThe original demand curve D<sub>0<\/sub>, like every demand curve, is based on the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption that no other economically relevant factors change. Now imagine that the economy expands in a way that raises the incomes of many people, making cars more affordable. How will this affect demand? How can we show this graphically?\r\n\r\nReturn to Figure 1. The price of cars is still $20,000, but with higher incomes, the quantity demanded has now increased to 20 million cars, shown at point S. As a result of the higher income levels, the demand curve shifts to the right to the new demand curve D<sub>1<\/sub>, indicating an increase in demand. Table 1, below, shows clearly that this increased demand would occur at every price, not just the original one.\r\n<table id=\"Table_03_04\" summary=\"The table is called \u201cPrice and Demand Shifts: A Car Example.\u201d It has four columns that show how the demand for cars changes at different levels. The four columns are Price, Decrease to D2, Original Quantity Demanded D0, and Increase to D1. When a car is priced at $16,000, the Decrease to D2 is 17.6 million cars. The Original Quantity Demanded D0 is 22.0 million and the Increase to D1 is 24.0 million. When a car is $18,000, the Decrease to D2 is 16 million. The Original Quantity Demanded D0 is 20.0 million and the Increase to D1 is 22.0 million. At $20,000, the Decrease to D1 is 14.4 million cars. The Original Quantity Demanded D0 is 18.0 million and the Increase to D1 is 20.0 million. At $22,000, the Decrease to D1 is 13.6 million cars. The Original Quantity Demanded D0 is 17.0 million and the Increase to D1 is 19.0 million. At $24,000, the Decrease to D1 is 13.2 million cars. The Original Quantity Demanded D0 is 16.5 million and the Increase to D1 is 18.5 million. Finally, at $26,000, the Decrease to D1 is 12.8 million cars. The Original Quantity Demanded D0 is 16.0 million and the Increase to D1 is 18.0 million.\"><caption><span data-type=\"title\">Table 1. Price and Demand Shifts: A Car Example<\/span><\/caption>\r\n<thead>\r\n<tr>\r\n<th>Price<\/th>\r\n<th>Decrease to D<sub>2<\/sub><\/th>\r\n<th>Original Quantity Demanded D<sub>0<\/sub><\/th>\r\n<th>Increase to D<sub>1<\/sub><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>$16,000<\/td>\r\n<td>17.6 million<\/td>\r\n<td>22.0 million<\/td>\r\n<td>24.0 million<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$18,000<\/td>\r\n<td>16.0 million<\/td>\r\n<td>20.0 million<\/td>\r\n<td>22.0 million<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$20,000<\/td>\r\n<td>14.4 million<\/td>\r\n<td>18.0 million<\/td>\r\n<td>20.0 million<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$22,000<\/td>\r\n<td>13.6 million<\/td>\r\n<td>17.0 million<\/td>\r\n<td>19.0 million<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$24,000<\/td>\r\n<td>13.2 million<\/td>\r\n<td>16.5 million<\/td>\r\n<td>18.5 million<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$26,000<\/td>\r\n<td>12.8 million<\/td>\r\n<td>16.0 million<\/td>\r\n<td>18.0 million<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNow, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes. In this case, the decrease in income would lead to a lower quantity of cars demanded at every given price, and the original demand curve D<sub>0<\/sub> would shift left to D<sub>2<\/sub>. The shift from D<sub>0<\/sub> to D<sub>2<\/sub> represents such a decrease in demand: At any given price level, the quantity demanded is now lower. In this example, a price of $20,000 means 18 million cars sold along the original demand curve, but only 14.4 million sold after demand fell.\r\n\r\nWhen a demand curve shifts, it does not mean that the quantity demanded by every individual buyer changes by the same amount. In this example, not everyone would have higher or lower income and not everyone would buy or not buy an additional car. Instead, a shift in a demand curve captures a pattern for the market as a whole:\u00a0Increased demand means that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D<sub>0<\/sub> to D<sub>1<\/sub>. And, decreased demand means that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D<sub>0<\/sub> to D<sub>2<\/sub>.\r\n\r\nWe just argued that higher income causes greater demand at every price. This is true for most goods and services. For some\u2014luxury cars, vacations in Europe, and fine jewelry\u2014the effect of a rise in income can be especially pronounced. A product whose demand rises when income rises, and vice versa, is called a <strong>normal good<\/strong>.\u00a0A few exceptions to this pattern do exist, however. As incomes rise, many people will buy fewer generic-brand groceries and more name-brand groceries. They are less likely to buy used cars and more likely to buy new cars. They will be less likely to rent an apartment and more likely to own a home, and so on. A product whose demand falls when income rises, and vice versa, is called an <strong>inferior good<\/strong>.\u00a0In other words, when income increases, the demand curve shifts to the left.\r\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">Other Factors That Shift Demand Curves<\/span><\/h3>\r\nIncome 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.\r\n<h4><span class=\"bold\"><strong>Changing Tastes or Preferences<\/strong><\/span><\/h4>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24180016\/8751424167_c53a121df9_k.jpg\" rel=\"attachment wp-att-5614\"><img class=\"wp-image-5614 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162950\/8751424167_c53a121df9_k-768x1024.jpg\" alt=\"Photo of a boy with a fried chicken foot in his mouth.\" width=\"249\" height=\"332\" \/><\/a>\r\n\r\nFrom 1980 to 2012, the per-person consumption of chicken by Americans rose from 33 pounds per year to 81 pounds per year, and consumption of beef fell from 77 pounds per year to 57 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to shifts\u00a0in taste, which change the quantity of a good demanded at every price: That is, they shift the demand curve for that good\u2014rightward for chicken and leftward for beef.\r\n<h4><span class=\"bold\"><strong>Changes in the Composition of the Population<\/strong><\/span><\/h4>\r\nThe proportion of elderly citizens in the United States population is rising. It rose from 9.8 percent in 1970 to 12.6 percent in 2000 and will be a projected (by the U.S. Census Bureau) 20 percent 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.\r\n<h4><span class=\"bold\"><strong>Changes in the Prices of Related Goods<\/strong><\/span><\/h4>\r\nThe demand for a product can also be affected by changes in the prices of related goods such as substitutes or complements. A\u00a0<strong>substitute<em data-redactor-tag=\"em\">\u00a0<\/em><\/strong>is a good or service that can be used in place of another good or service. As electronic books, like this one, become more available, you would expect to see a decrease in demand for traditional printed books. A lower price for a substitute decreases demand for the other product. For example, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the law of demand). Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops. A higher price for a substitute good has the reverse effect.\r\n\r\nOther goods are <b>complements <\/b>for\u00a0each other, meaning that the goods are often used together, because consumption of one good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread. If the price of golf clubs rises, since the quantity of golf clubs demanded falls (because of the law of demand), demand for a complement good like golf balls decreases, too. Similarly, a higher price for skis would shift the demand curve for a complement good like ski resort trips to the left, while a lower price for a complement has the reverse effect.\r\n<h3><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24180600\/4467255185_c2f8fa06b5_b.jpg\" rel=\"attachment wp-att-5615\"><img class=\"aligncenter wp-image-5615\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162954\/4467255185_c2f8fa06b5_b-1024x680.jpg\" alt=\"Photo of the lower half of a couple riding a bike. The person in the back sits sidesaddle and is carrying a large package of toilet paper.\" width=\"500\" height=\"332\" \/><\/a><\/h3>\r\n<h4><span class=\"bold\"><strong>Changes in Expectations About Future Prices or Other Factors That Affect Demand<\/strong><\/span><\/h4>\r\nWhile 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\u00a0<strong>shift in demand<\/strong> happens\u00a0when a change in some economic factor (other than the current price) causes a different quantity to be demanded at every price.\r\n<h2>Worked Example: Shift in Demand<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/08215453\/13280037445_5e6eee5e25_o-1.jpg\" rel=\"attachment wp-att-5881\"><img class=\"wp-image-5881 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162957\/13280037445_5e6eee5e25_o-1.jpg\" alt=\"Photo of a dog with the side of a whole pizza in its teeth.\" width=\"450\" height=\"450\" \/><\/a>\r\n<h3><strong>Shift in\u00a0Demand Due to Income Increase<\/strong><\/h3>\r\nA shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. Following is a graphic illustration of a shift in demand due to an income increase.\r\n\r\n<strong>Step 1<\/strong>. Draw the graph of a demand curve for a normal good like pizza. Pick a price (like P<sub>0<\/sub>). Identify the corresponding Q<sub>0<\/sub>. An example is shown in Figure 1.\r\n\r\n[caption id=\"attachment_6333\" align=\"aligncenter\" width=\"400\"]<img class=\"wp-image-6333\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163000\/CNX_Econ_0191.jpg\" alt=\"The graph represents the directions for step 1. A demand curve shows how much consumers would be willing to buy at any given price.\" width=\"400\" height=\"243\" \/> <strong>Figure 1. Demand Curve.\u00a0<\/strong>A\u00a0demand curve can be used to identify how much consumers would buy at any given price.[\/caption]\r\n\r\n<strong>Step 2<\/strong>. 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<sub>1<\/sub>. Draw a dotted vertical line down to the horizontal axis and label the new Q<sub>1<\/sub>. An example is provided in Figure 2.\r\n\r\n[caption id=\"attachment_6334\" align=\"aligncenter\" width=\"400\"]<img class=\"wp-image-6334\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163003\/CNX_Econ_0201.jpg\" alt=\"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.\" width=\"400\" height=\"247\" \/> <strong>Figure 2. Demand Curve with Income Increase.<\/strong> With an increase in income, consumers will purchase larger quantities, pushing demand to the right.[\/caption]\r\n\r\n<strong>Step 3<\/strong>. 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.\r\n\r\n[caption id=\"attachment_6335\" align=\"aligncenter\" width=\"400\"]<img class=\"wp-image-6335\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163007\/CNX_Econ_0211.jpg\" alt=\"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.\" width=\"400\" height=\"245\" \/> <strong>Figure 3. Demand Curve Shifted Right.<\/strong> With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.[\/caption]\r\n<h2>Summary of Factors That Change Demand<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24190428\/9595911874_92697c0b0a_k.jpg\" rel=\"attachment wp-att-5623\"><img class=\"wp-image-5623 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163010\/9595911874_92697c0b0a_k-1024x577.jpg\" alt=\"Three paper cylinders. The top of each has been diagonally cut and shifted slightly to the left.\" width=\"500\" height=\"282\" \/><\/a>\r\n\r\nSix factors that can shift demand curves are summarized in Figure 1, below. 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.\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"751\"]<img class=\"\" src=\"https:\/\/textimgs.s3.amazonaws.com\/DE\/microecon\/u1t9-s44mgw6i#fixme#fixme#fixme#fixme#fixme\" alt=\"The graph on the left lists events that could lead to increased demand. These include taste shift to greater popularity, population likely to buy rises, income rises (for a normal good), price of substitution rises, price of complements falls, and future expectations encourage buying. The graph on the right lists events that could lead to decreased demand. These include a taste shift to lesser popularity, population likely to buy drops, income drops (for a normal good), the price of substitutes falls, the price of complements rises, future expectations discourage buying.\" width=\"751\" height=\"234\" \/> <strong>Figure 1. Factors That Shift Demand Curves<\/strong> (a) A list of factors that can cause an increase in demand from D0 to D1. (b) The same factors, if their direction is reversed, can cause a decrease in demand from D0 to D1.[\/caption]\r\n<h2>Try It: Demand for Food Trucks<\/h2>\r\nPlay the simulation below multiple times to see how different choices lead to different outcomes. All simulations allow unlimited attempts so that you can gain experience applying the concepts.\r\n\r\n<iframe src=\"https:\/\/www.branchtrack.com\/projects\/bchxj1p8\/embed\" width=\"850\" height=\"500\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe>\r\n<h2>Check Your Understanding<\/h2>\r\nAnswer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.\r\n\r\nUse this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/2968","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Explain the law of demand<\/li>\n<li>Explain a demand curve<\/li>\n<li>Explain the factors that can change\u00a0demand<\/li>\n<\/ul>\n<\/div>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Episode 11 - Demand\" width=\"500\" height=\"375\" src=\"https:\/\/www.youtube.com\/embed\/uXlZIn6W7Ew?start=1&#38;feature=oembed\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>The law of demand states that, other things\u00a0being equal,<\/p>\n<ul>\n<li>More of a good will be bought the lower its price<\/li>\n<li>Less of a good will be bought the higher its price<\/li>\n<\/ul>\n<p><em>Ceteris paribus<\/em> means &#8220;other things being equal.&#8221;<\/p>\n<h2>What Is Demand?<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/23224253\/6395014081_3b14ed32bc_b.jpg\" rel=\"attachment wp-att-5595\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5595 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162939\/6395014081_3b14ed32bc_b-1024x819.jpg\" alt=\"Photo of a small red and white gas station and gas pump.\" width=\"600\" height=\"480\" \/><\/a><\/p>\n<h3>Demand for Goods and Services<\/h3>\n<p>Economists use the term <strong>demand<\/strong>\u00a0to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants\u2014a consumer may be able to differentiate between a need and a want, but from an economist&#8217;s perspective, they are the same thing. Demand is also based on ability to pay. If you can&#8217;t\u00a0pay for it, you have no effective demand.<\/p>\n<p>What a buyer pays for a unit of the specific good or service is called the\u00a0<strong>price<\/strong>. The total number of units purchased at that price is called the <strong>quantity demanded<\/strong>. A rise in the price of a good or service almost always decreases the quantity of that good or service demanded. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the <strong>law of demand<\/strong>. The law of demand assumes that all other variables that affect demand are held constant.<\/p>\n<div class=\"linkitup\">\n<p>An example from the market for gasoline can be shown in the form of a table or a graph. (Refer back to &#8220;Reading: Creating and Interpreting Graphs&#8221; in chapter 0 if you need a refresher on graphs.) A table that shows the quantity demanded at each price, such as Table 1, is called a <strong>demand schedule<\/strong>. Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country).<\/p>\n<p><span class=\"cnx-gentext-caption cnx-gentext-t\">Table <\/span><span class=\"cnx-gentext-caption cnx-gentext-n\">1. <\/span>Price and Quantity Demanded of Gasoline<\/p>\n<table>\n<thead>\n<tr>\n<th>Price (per gallon)<\/th>\n<th>Quantity Demanded (millions of gallons)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$1.00<\/td>\n<td>800<\/td>\n<\/tr>\n<tr>\n<td>$1.20<\/td>\n<td>700<\/td>\n<\/tr>\n<tr>\n<td>$1.40<\/td>\n<td>600<\/td>\n<\/tr>\n<tr>\n<td>$1.60<\/td>\n<td>550<\/td>\n<\/tr>\n<tr>\n<td>$1.80<\/td>\n<td>500<\/td>\n<\/tr>\n<tr>\n<td>$2.00<\/td>\n<td>460<\/td>\n<\/tr>\n<tr>\n<td>$2.20<\/td>\n<td>420<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>A <strong>demand curve<\/strong> shows the relationship between price and quantity demanded on a graph like Figure 1, below, with quantity on the horizontal axis and the price per gallon on the vertical axis. <em>Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is different from\u00a0math!<\/em><\/p>\n<div style=\"width: 595px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162942\/CNX_Econ_C03_0011.jpg\" alt=\"The graph shows a downward-sloping demand curve that represents the law of demand.\" width=\"585\" height=\"313\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 1. A Demand Curve for Gasoline<\/strong><\/p>\n<\/div>\n<p>The demand schedule (Table 1) shows that as price rises, quantity demanded decreases, and vice versa. These points can then be\u00a0graphed, and the line connecting them is the demand curve (shown by line D in the graph, above). The downward slope of the demand curve again illustrates the law of demand\u2014the inverse relationship between prices and quantity demanded.<\/p>\n<p>The demand schedule shown by Table 1 and the demand curve shown by the graph in Figure 1 are two ways of describing the same relationship between price and quantity demanded.<\/p>\n<\/div>\n<p>Demand curves will look\u00a0somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. In this way, demand curves embody the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases.<\/p>\n<h3>Demand vs. Quantity Demanded<\/h3>\n<p>In economic terminology, <em>demand<\/em> is not the same as <em>quantity demanded<\/em>. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.<\/p>\n<h2>Change in Demand vs. Change in Quantity Demanded<\/h2>\n<p><iframe loading=\"lazy\" id=\"oembed-2\" title=\"Episode 12: Change in Demand vs Change in Quantity Demanded\" width=\"500\" height=\"375\" src=\"https:\/\/www.youtube.com\/embed\/aTSwcXJ700c?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>A change in price does not move the demand curve. It only shows a difference in the quantity demanded.<\/p>\n<p>The demand curve will move left or right when there is an underlying change in demand at all prices.<\/p>\n<h2>Factors Affecting Demand<\/h2>\n<h2><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24175403\/15636059197_26b56acdd1_k.jpg\" rel=\"attachment wp-att-5613\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5613 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162945\/15636059197_26b56acdd1_k-1024x678.jpg\" alt=\"15636059197_26b56acdd1_k\" width=\"602\" height=\"398\" \/><\/a><\/h2>\n<h3>Introduction<\/h3>\n<p>We defined demand as the amount of some product that a consumer is <em>willing<\/em> and <em>able<\/em> to purchase at each <em>price<\/em>. This suggests at least two factors, in addition to price, that affect demand. &#8220;Willingness to purchase&#8221; suggests a desire to buy, and it depends on what economists call tastes and preferences. If you neither need nor want something, you won&#8217;t be willing to buy it. &#8220;Ability to purchase&#8221; suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. The prices of related goods can also affect demand. If you need a new car, for example, the price of a Honda may affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their demand for car insurance and the less for diapers and baby formula.<\/p>\n<p>These factors matter both for demand by an individual and demand by the market as a whole. Exactly how do these various factors affect demand, and how do we show the effects graphically? To answer those questions, we need the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption.<\/p>\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">The <em>Ceteris Paribus<\/em> Assumption<\/span><\/h3>\n<p>A\u00a0<em data-redactor-tag=\"em\">demand curve<\/em> or a <em>supply curve<\/em>\u00a0(which we&#8217;ll cover later in this chapter) is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product&#8217;s price, are changing. Economists call this assumption\u00a0<strong><em>ceteris paribus<\/em><\/strong>, a Latin phrase meaning &#8220;other things being equal.&#8221; Any given demand or supply curve is based on the <span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption that all else is held equal. (You&#8217;ll recall that economists use the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption to simplify the focus of analysis.) Therefore, a demand curve or a supply curve is a relationship between two, and only two, variables <em>when all other variables are held equal<\/em>. If all else is not held equal, then the laws of supply and demand will not necessarily hold.<\/p>\n<p><em><span class=\"emphasis\" data-redactor-tag=\"span\">Ceteris paribus<\/span> <\/em>is typically applied when we look at how changes in price affect demand or supply, but\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> can also be applied more generally. In the real world, demand and supply depend on more factors than just price. For example, a consumer&#8217;s demand depends on income, and a producer&#8217;s supply depends on the cost of producing the product. How can we analyze the effect on demand or supply if multiple factors are changing at the same time\u2014say price rises and income falls? The answer is that we examine the changes one at a time, and assume that the other factors are held constant.<\/p>\n<p>For example, we can say that an increase in the price reduces the amount consumers will buy (assuming income, and anything else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to buy (assuming price, and anything else that affects demand, is unchanged). This is what the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption really means. In this particular case, after we analyze each factor separately, we can combine the results. The amount consumers buy falls for two reasons: first because of the higher price and second because of the lower income.<\/p>\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">The Effect of Income on Demand<\/span><\/h3>\n<p>Let&#8217;s use income as an example of how factors other than price affect demand. Figure 1 shows the initial demand for automobiles as D<sub>0<\/sub>. At point Q, for example, if the price is $20,000 per car, the quantity of cars demanded is 18 million. D<sub>0<\/sub> also shows how the quantity of cars demanded would change as a result of a higher or lower price. For example, if the price of a car rose to $22,000, the quantity demanded would decrease to 17 million, at point R.<\/p>\n<div style=\"width: 544px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162947\/CNX_Econ_C03_0041.jpg\" alt=\"The graph shows demand curve D sub 0 as the original demand curve. Demand curve D sub 1 represents a shift based on increased income. Demand curve D sub 2 represents a shift based on decreased income.\" width=\"534\" height=\"342\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 1. Shifts in Demand: A Car Example<\/strong><\/p>\n<\/div>\n<p>The original demand curve D<sub>0<\/sub>, like every demand curve, is based on the\u00a0<span class=\"emphasis\"><em>ceteris paribus<\/em><\/span> assumption that no other economically relevant factors change. Now imagine that the economy expands in a way that raises the incomes of many people, making cars more affordable. How will this affect demand? How can we show this graphically?<\/p>\n<p>Return to Figure 1. The price of cars is still $20,000, but with higher incomes, the quantity demanded has now increased to 20 million cars, shown at point S. As a result of the higher income levels, the demand curve shifts to the right to the new demand curve D<sub>1<\/sub>, indicating an increase in demand. Table 1, below, shows clearly that this increased demand would occur at every price, not just the original one.<\/p>\n<table id=\"Table_03_04\" summary=\"The table is called \u201cPrice and Demand Shifts: A Car Example.\u201d It has four columns that show how the demand for cars changes at different levels. The four columns are Price, Decrease to D2, Original Quantity Demanded D0, and Increase to D1. When a car is priced at $16,000, the Decrease to D2 is 17.6 million cars. The Original Quantity Demanded D0 is 22.0 million and the Increase to D1 is 24.0 million. When a car is $18,000, the Decrease to D2 is 16 million. The Original Quantity Demanded D0 is 20.0 million and the Increase to D1 is 22.0 million. At $20,000, the Decrease to D1 is 14.4 million cars. The Original Quantity Demanded D0 is 18.0 million and the Increase to D1 is 20.0 million. At $22,000, the Decrease to D1 is 13.6 million cars. The Original Quantity Demanded D0 is 17.0 million and the Increase to D1 is 19.0 million. At $24,000, the Decrease to D1 is 13.2 million cars. The Original Quantity Demanded D0 is 16.5 million and the Increase to D1 is 18.5 million. Finally, at $26,000, the Decrease to D1 is 12.8 million cars. The Original Quantity Demanded D0 is 16.0 million and the Increase to D1 is 18.0 million.\">\n<caption><span data-type=\"title\">Table 1. Price and Demand Shifts: A Car Example<\/span><\/caption>\n<thead>\n<tr>\n<th>Price<\/th>\n<th>Decrease to D<sub>2<\/sub><\/th>\n<th>Original Quantity Demanded D<sub>0<\/sub><\/th>\n<th>Increase to D<sub>1<\/sub><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$16,000<\/td>\n<td>17.6 million<\/td>\n<td>22.0 million<\/td>\n<td>24.0 million<\/td>\n<\/tr>\n<tr>\n<td>$18,000<\/td>\n<td>16.0 million<\/td>\n<td>20.0 million<\/td>\n<td>22.0 million<\/td>\n<\/tr>\n<tr>\n<td>$20,000<\/td>\n<td>14.4 million<\/td>\n<td>18.0 million<\/td>\n<td>20.0 million<\/td>\n<\/tr>\n<tr>\n<td>$22,000<\/td>\n<td>13.6 million<\/td>\n<td>17.0 million<\/td>\n<td>19.0 million<\/td>\n<\/tr>\n<tr>\n<td>$24,000<\/td>\n<td>13.2 million<\/td>\n<td>16.5 million<\/td>\n<td>18.5 million<\/td>\n<\/tr>\n<tr>\n<td>$26,000<\/td>\n<td>12.8 million<\/td>\n<td>16.0 million<\/td>\n<td>18.0 million<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Now, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes. In this case, the decrease in income would lead to a lower quantity of cars demanded at every given price, and the original demand curve D<sub>0<\/sub> would shift left to D<sub>2<\/sub>. The shift from D<sub>0<\/sub> to D<sub>2<\/sub> represents such a decrease in demand: At any given price level, the quantity demanded is now lower. In this example, a price of $20,000 means 18 million cars sold along the original demand curve, but only 14.4 million sold after demand fell.<\/p>\n<p>When a demand curve shifts, it does not mean that the quantity demanded by every individual buyer changes by the same amount. In this example, not everyone would have higher or lower income and not everyone would buy or not buy an additional car. Instead, a shift in a demand curve captures a pattern for the market as a whole:\u00a0Increased demand means that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D<sub>0<\/sub> to D<sub>1<\/sub>. And, decreased demand means that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D<sub>0<\/sub> to D<sub>2<\/sub>.<\/p>\n<p>We just argued that higher income causes greater demand at every price. This is true for most goods and services. For some\u2014luxury cars, vacations in Europe, and fine jewelry\u2014the effect of a rise in income can be especially pronounced. A product whose demand rises when income rises, and vice versa, is called a <strong>normal good<\/strong>.\u00a0A few exceptions to this pattern do exist, however. As incomes rise, many people will buy fewer generic-brand groceries and more name-brand groceries. They are less likely to buy used cars and more likely to buy new cars. They will be less likely to rent an apartment and more likely to own a home, and so on. A product whose demand falls when income rises, and vice versa, is called an <strong>inferior good<\/strong>.\u00a0In other words, when income increases, the demand curve shifts to the left.<\/p>\n<h3><span class=\"cnx-gentext-section cnx-gentext-t\">Other Factors That Shift Demand Curves<\/span><\/h3>\n<p>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&#8217;s look at these factors.<\/p>\n<h4><span class=\"bold\"><strong>Changing Tastes or Preferences<\/strong><\/span><\/h4>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24180016\/8751424167_c53a121df9_k.jpg\" rel=\"attachment wp-att-5614\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5614 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162950\/8751424167_c53a121df9_k-768x1024.jpg\" alt=\"Photo of a boy with a fried chicken foot in his mouth.\" width=\"249\" height=\"332\" \/><\/a><\/p>\n<p>From 1980 to 2012, the per-person consumption of chicken by Americans rose from 33 pounds per year to 81 pounds per year, and consumption of beef fell from 77 pounds per year to 57 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to shifts\u00a0in taste, which change the quantity of a good demanded at every price: That is, they shift the demand curve for that good\u2014rightward for chicken and leftward for beef.<\/p>\n<h4><span class=\"bold\"><strong>Changes in the Composition of the Population<\/strong><\/span><\/h4>\n<p>The proportion of elderly citizens in the United States population is rising. It rose from 9.8 percent in 1970 to 12.6 percent in 2000 and will be a projected (by the U.S. Census Bureau) 20 percent 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.<\/p>\n<h4><span class=\"bold\"><strong>Changes in the Prices of Related Goods<\/strong><\/span><\/h4>\n<p>The demand for a product can also be affected by changes in the prices of related goods such as substitutes or complements. A\u00a0<strong>substitute<em data-redactor-tag=\"em\">\u00a0<\/em><\/strong>is a good or service that can be used in place of another good or service. As electronic books, like this one, become more available, you would expect to see a decrease in demand for traditional printed books. A lower price for a substitute decreases demand for the other product. For example, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the law of demand). Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops. A higher price for a substitute good has the reverse effect.<\/p>\n<p>Other goods are <b>complements <\/b>for\u00a0each other, meaning that the goods are often used together, because consumption of one good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread. If the price of golf clubs rises, since the quantity of golf clubs demanded falls (because of the law of demand), demand for a complement good like golf balls decreases, too. Similarly, a higher price for skis would shift the demand curve for a complement good like ski resort trips to the left, while a lower price for a complement has the reverse effect.<\/p>\n<h3><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24180600\/4467255185_c2f8fa06b5_b.jpg\" rel=\"attachment wp-att-5615\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-5615\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162954\/4467255185_c2f8fa06b5_b-1024x680.jpg\" alt=\"Photo of the lower half of a couple riding a bike. The person in the back sits sidesaddle and is carrying a large package of toilet paper.\" width=\"500\" height=\"332\" \/><\/a><\/h3>\n<h4><span class=\"bold\"><strong>Changes in Expectations About Future Prices or Other Factors That Affect Demand<\/strong><\/span><\/h4>\n<p>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\u00a0<strong>shift in demand<\/strong> happens\u00a0when a change in some economic factor (other than the current price) causes a different quantity to be demanded at every price.<\/p>\n<h2>Worked Example: Shift in Demand<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/08215453\/13280037445_5e6eee5e25_o-1.jpg\" rel=\"attachment wp-att-5881\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5881 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27162957\/13280037445_5e6eee5e25_o-1.jpg\" alt=\"Photo of a dog with the side of a whole pizza in its teeth.\" width=\"450\" height=\"450\" \/><\/a><\/p>\n<h3><strong>Shift in\u00a0Demand Due to Income Increase<\/strong><\/h3>\n<p>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 a graphic illustration of a shift in demand due to an income increase.<\/p>\n<p><strong>Step 1<\/strong>. Draw the graph of a demand curve for a normal good like pizza. Pick a price (like P<sub>0<\/sub>). Identify the corresponding Q<sub>0<\/sub>. An example is shown in Figure 1.<\/p>\n<div id=\"attachment_6333\" style=\"width: 410px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6333\" class=\"wp-image-6333\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163000\/CNX_Econ_0191.jpg\" alt=\"The graph represents the directions for step 1. A demand curve shows how much consumers would be willing to buy at any given price.\" width=\"400\" height=\"243\" \/><\/p>\n<p id=\"caption-attachment-6333\" class=\"wp-caption-text\"><strong>Figure 1. Demand Curve.\u00a0<\/strong>A\u00a0demand curve can be used to identify how much consumers would buy at any given price.<\/p>\n<\/div>\n<p><strong>Step 2<\/strong>. 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<sub>1<\/sub>. Draw a dotted vertical line down to the horizontal axis and label the new Q<sub>1<\/sub>. An example is provided in Figure 2.<\/p>\n<div id=\"attachment_6334\" style=\"width: 410px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6334\" class=\"wp-image-6334\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163003\/CNX_Econ_0201.jpg\" alt=\"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.\" width=\"400\" height=\"247\" \/><\/p>\n<p id=\"caption-attachment-6334\" class=\"wp-caption-text\"><strong>Figure 2. Demand Curve with Income Increase.<\/strong> With an increase in income, consumers will purchase larger quantities, pushing demand to the right.<\/p>\n<\/div>\n<p><strong>Step 3<\/strong>. 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.<\/p>\n<div id=\"attachment_6335\" style=\"width: 410px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6335\" class=\"wp-image-6335\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163007\/CNX_Econ_0211.jpg\" alt=\"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.\" width=\"400\" height=\"245\" \/><\/p>\n<p id=\"caption-attachment-6335\" class=\"wp-caption-text\"><strong>Figure 3. Demand Curve Shifted Right.<\/strong> With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.<\/p>\n<\/div>\n<h2>Summary of Factors That Change Demand<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/24190428\/9595911874_92697c0b0a_k.jpg\" rel=\"attachment wp-att-5623\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5623 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/07\/27163010\/9595911874_92697c0b0a_k-1024x577.jpg\" alt=\"Three paper cylinders. The top of each has been diagonally cut and shifted slightly to the left.\" width=\"500\" height=\"282\" \/><\/a><\/p>\n<p>Six factors that can shift demand curves are summarized in Figure 1, below. 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.<\/p>\n<div style=\"width: 761px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"\" src=\"https:\/\/textimgs.s3.amazonaws.com\/DE\/microecon\/u1t9-s44mgw6i#fixme#fixme#fixme#fixme#fixme\" alt=\"The graph on the left lists events that could lead to increased demand. These include taste shift to greater popularity, population likely to buy rises, income rises (for a normal good), price of substitution rises, price of complements falls, and future expectations encourage buying. The graph on the right lists events that could lead to decreased demand. These include a taste shift to lesser popularity, population likely to buy drops, income drops (for a normal good), the price of substitutes falls, the price of complements rises, future expectations discourage buying.\" width=\"751\" height=\"234\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 1. Factors That Shift Demand Curves<\/strong> (a) A list of factors that can cause an increase in demand from D0 to D1. (b) The same factors, if their direction is reversed, can cause a decrease in demand from D0 to D1.<\/p>\n<\/div>\n<h2>Try It: Demand for Food Trucks<\/h2>\n<p>Play the simulation below multiple times to see how different choices lead to different outcomes. All simulations allow unlimited attempts so that you can gain experience applying the concepts.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.branchtrack.com\/projects\/bchxj1p8\/embed\" width=\"850\" height=\"500\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>Check Your Understanding<\/h2>\n<p>Answer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.<\/p>\n<p>Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.<\/p>\n<p>\t<iframe id=\"lumen_assessment_2968\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=2968&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_2968\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-11154\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Revision and adaptation. <strong>Authored by<\/strong>: Linda Williams and Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Demand for Food Trucks. <strong>Authored by<\/strong>: Clark Aldrich for Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Check Your Understanding. <strong>Authored by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Episode 11: Demand. <strong>Authored by<\/strong>: Dr. Mary J. McGlasson. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=uXlZIn6W7Ew&#038;feature=youtu.be\">https:\/\/www.youtube.com\/watch?v=uXlZIn6W7Ew&#038;feature=youtu.be<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nd\/4.0\/\">CC BY-ND: Attribution-NoDerivatives<\/a><\/em><\/li><li>Principles of Microeconomics Chapter 3.1. <strong>Authored by<\/strong>: OpenStax College. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics\">http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Presto. <strong>Authored by<\/strong>: michaelgoodin. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/michaelgoodin\/6395014081\/\">https:\/\/www.flickr.com\/photos\/michaelgoodin\/6395014081\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>Episode 12: Change in Demand vs Change in Quantity Demanded. <strong>Authored by<\/strong>: Dr. Mary J. McGlasson. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/aTSwcXJ700c\">https:\/\/youtu.be\/aTSwcXJ700c<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>Principles of Microeconomics Chapter 3.2. <strong>Authored by<\/strong>: OpenStax College. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics\">http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/content\/col11627\/latest<\/li><li>Get targeted leads to shopify stores. <strong>Authored by<\/strong>: Rick Hanson. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/realtrafficsource\/15636059197\/\">https:\/\/www.flickr.com\/photos\/realtrafficsource\/15636059197\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc\/4.0\/\">CC BY-NC: Attribution-NonCommercial<\/a><\/em><\/li><li>Grilled Chicken Feet. <strong>Authored by<\/strong>: Roger Smith. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/rogersmith\/8751424167\/\">https:\/\/www.flickr.com\/photos\/rogersmith\/8751424167\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>Stock up. <strong>Authored by<\/strong>: Marc van Woudenberg. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/mindcaster-ezzolicious\/4467255185\/\">https:\/\/www.flickr.com\/photos\/mindcaster-ezzolicious\/4467255185\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>Principles of Microeconomics Chapter 3.2. <strong>Authored by<\/strong>: OpenStax College. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics\">http:\/\/cnx.org\/contents\/ea2f225e-6063-41ca-bcd8-36482e15ef65@10.31:24\/Microeconomics<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Is anyone interested in a pizza party?. <strong>Authored by<\/strong>: mikethefifth. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/20608722@N00\/13280037445\/\">https:\/\/www.flickr.com\/photos\/20608722@N00\/13280037445\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":26,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Episode 11: Demand\",\"author\":\"Dr. Mary J. 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