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- [Tyler] In previous videos,
we've covered the basics of the demand curve.
Now let's discuss what happens when the demand curve shifts,
due to increases or decreases in market demand.
First, let's look at an increase in demand.
An increase in demand
means that the demand curve shifts up and to the right.
Take the market for houseplants, for instance.
On the old demand curve at $20,
the quantity demanded was five plants,
but on the new demand curve at, again, $20,
the quantity demanded is eight plants.
At $16, we go from six plants to nine plants.
At $12, we go from seven to ten plants, and so on.
An increase in demand
is a greater quantity demanded at every price.
We can also read an increase in demand
using what is called the vertical method.
What that means is that for every quantity,
there's a greater willingness to pay for that quantity.
For instance, for the fifth unit,
people had been willing to pay $20 for that unit.
Now with the new demand curve,
people are willing to pay $32 for that unit.
In summary, an increase in demand
means an increase in the quantity demanded
at every market price.
Or equivalently, it means an increase
in the maximum willingness to pay for a given quantity.
A decrease in demand --
well, that's just the opposite of an increase in demand.
It's a shift down and to the left.
There's a decrease in quantity demanded at every price.
Now at $20, people only want to buy two houseplants.
At $16, we go from six to three houseplants and so on.
Similarly, this means a decrease
in the willingness to pay for the same quantity.
For the fifth unit,
people were willing to pay $20 for that unit,
but now they're only going to fork over $8
for that houseplant.
So what can cause a shift in demand?
What would make consumers buy more or less of a good
at every price?
Take a moment to jot down some guesses.
We'll go through these with a few examples.
But the real goal is not to memorize this list
but rather to understand
what an increase or decrease in demand means
so that you can recreate this list on your own.
Let's now go through five factors
that can increase or decrease market demand,
namely income, population, tastes,
the price of related goods,
and finally, expectations.
Let's start with changes in income.
The effect of a change in income on demand
depends on the nature of the good in question.
For most goods, as your income goes up,
you demand more of the good.
Think, for instance, fine dining.
You need to be able to afford it, right?
The demand curve then shifts up and to the right.
These goods are called normal goods
because the demand for them goes up when incomes go up,
and indeed most goods are normal goods --
that's why we call them normal.
And these same goods --
the demand for them goes down when incomes go down.
There are also goods, however,
for which, when your income goes up,
your demand for them actually goes down.
These are exceptions.
We call them inferior goods.
So an example of such an inferior good
might be instant ramen --
it's very cheap.
As you make more money, you might buy, say,
more caviar, more steak, and less instant ramen.
- [voice] No, thanks!
- [Tyler] Thus, the demand curve for instant ramen
will shift down into the left as your income increases.
Now let's move on to changes in population.
If the population of an economy changes,
the number of potential buyers of a good changes also.
What would happen to the demand for hearing aids
if the elderly population in your country increased?
Well, very likely, demand for hearing aids would increase.
At any price for those hearing aids,
there would be a higher quantity demanded.
Can you think of a good that would decrease in demand
if the birth rates in your country decreased?
Now, we'll move on to changes in tastes.
Tastes are subjective, and they're changing all the time.
New information, fashions, and fads all can impact tastes.
To give an example,
what happens to the demand for hamburgers
if low-carb diets,
like the keto diet or the caveman diet
become more popular?
Well, people would want to go out and buy and eat more hamburgers,
and so the demand for hamburgers would increase.
Alternatively, what if a controversy surfaced
that questioned the ethics of hamburger production?
People might then feel bad about buying hamburgers,
and then they would buy fewer hamburgers
or maybe stop buying them altogether.
The demand for hamburgers then would go down.
Next, let's consider how the price of a related good
can affect demand,
starting with substitute goods.
Now substitutes are two goods that are roughly interchangeable.
They're not the same,
but they can serve broadly similar functions.
Take, for instance, hot dogs and hamburgers --
they're both something you might have for dinner.
Now in the setting,
suppose the price of hot dogs goes up.
What happens to the demand for hamburgers --
a substitute for hot dogs?
People will opt to buy
the relatively less expensive hamburgers,
instead of the now more expensive hot dogs.
That means the demand for hamburgers increases.
Or consider the opposite occurrence.
What if the price of hot dogs decreases,
instead of going up?
What happens then to the demand for hamburgers?
Well, that's just the opposite of the first scenario.
Hot dogs are now cheaper,
and the demand for hamburgers decreases
because it now costs less to buy hot dogs instead.
Technically, two goods are substitutes
if an increase in the price of one good
leads to an increase in demand for the other good and vice versa.
Another kind of related good
is what economists call complements.
Complements are two goods which are often used together
and make each other more valuable.
Suppose the price of hamburgers increases.
What happens to the demand for hamburger buns --
a complement to hamburgers [proper]?
Well, fewer people will buy hamburgers,
and so fewer people will buy hamburger buns.
The demand for hamburger buns decreases.
And to consider the opposite situation,
if the price of hamburger decreases,
demand for hamburger buns will increase --
that is, more people buying hamburger
means more people buying hamburger buns as well
because again, you're putting the hamburger and the bun together.
Technically, two goods are complements
if an increase in the price of one good
leads to a decrease in the demand for the other,
and vice versa.
So in sum, hamburger producers
want the price of hot dogs to go up,
the price of hamburger buns to go down,
and low-carb diets to go viral.
Finally, let's look at expectations.
These can be expectations of market prices
or of market events.
Consider video game consoles.
If it's November,
and people expect the price of a gaming console to go down
in a December holiday sale,
they might wait a few weeks before buying the console.
Demand for that console decreases today
because it's going to increase later on.
Or take batteries.
Suppose you hear there's going to be a big hurricane in your area.
If a hurricane hits,
you might expect the price of batteries is going to go up,
or maybe it will be really hard to get any batteries at all.
- [voice] Oh no!
- [Tyler] That means a higher demand for batteries today,
and so the expectation
of this future event of the hurricane
can change the demand for batteries today.
If people expect the price of a good
to be higher in the future --
that typically increases demand today.
Consumers adjust their current spending
anticipating the future prices
to obtain the lowest price possible.
And that's it for our list of shifters.
Now that you understand what a shift in demand means,
practice recreating this list of shifters on your own.
What would cause a higher quantity demanded
at every price?
More people? Wealthier people?
It's the hotter in-item and so on.
Conversely, what would cause less of a good
to be demanded at every price?
Once you can do that,
you'll be able to identify demand shifters
without the need to memorize any list.
- [Narrator] If you're a teacher,
you should check out our supply and demand unit plan
that incorporates this video.
If you're a learner,
make sure this video sticks
by answering a few quick practice questions.
Or if you're ready for more microeconomics,
click for the next video.
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