| A | B |
|---|
| Change in Quantity demanded | A change tht is graphically represented as movement along the demand curve. |
| The income effect | the change in quantity demanded because of a change in price that alters consumers' income. |
| Example of income effect | Consumers spent $120 to buy 24 burritos when the price was $5 per burrito. If the price drops to $3, they will spend only $72 on the same quantity, leaving them $24 richer because of the lower price. They may even spend some of this extra income on more burritos. This increase in the number of burritos purchased would be graphically represented as movement along the demand curve according to price (change in quantity demanded). |
| The substitution effect | The portion of the change in quantity demanded that is due to a change in the relative price of a good. People who were buying something other than burritos for lunch, may start now buying more burritos because of the lower price. As this is a change in response to price, it would be graphically represented as movement along the demand curve. (Change in Quantity demanded” in response to price) |
| Change in demand | Sometimes other factors change while price remains the same. When this happens, poeple may different amounts oa product at the same price...shifting the demand curve to the right if they are buying more and to the left if they are buiying less. This is different than a change in quantity demanded which is movement along the demand curve in response to a change in price. |
| Some factors that can change demand | consumer income, consumer tastes, substitutes,complements, expectations, and number of consumers |
| Consumer income | If consumer income goes up or down this can result in a change in demand shifting the curve to the right or left depending upon whether their incomes increased or decreased. If the minimum wage went up, people who received the increase would more likely buy more products at each and every price, shifting the demand curve to the right. |
| Consumer Tastes | Advertising, fashion trends, peer pressure, and even changes in the season can affect consumer choices. If Crocs become very popular, the demand curve for crocs would shift to the right. The demand curve for sandals in that situation would probably shift to the left because they may be buying crocs rather than sandals, resulting in a decrease in the amount of sandals purchased at each and every price and an increase in crocs purchased at each and every price (shift to the right on the demand curve. |
| Substitutes | A change in the price of related products that can cause a change in demand. |
| Complements | Related goods in which the use of one of the goods increases the use of the other. An example would be computers and computer software. In general, an increase in the price of a good results in a decrease in the demand for its complement.Also, a decrease in the price of a good usually leads to an increase in demand for its complement. |
| Expectations | The way people think about the future can also affect demand. Suppose that a company announces a technologial breakthrough in the cost and quality of televisions. Even if these products might not be available for a year, some consumers might hold off buying a TV today because of their expectations. The new expectations would cause fewer TVs to be purchased at every price and the demand curve would shift to the left. |
