Price

Income

Number of
Buyers

Prices of other
goods

Determinants of
Demand

Expectations
about future

Supply?

Tastes
Increase in demand graph

Quality

Decrease in demand graph

Determinants of
Demand

Prices of other
goods

Price

Expectations
about future

Quality

Income

Tastes

Number of
Buyers

Supply?

Increase in demand graph

Decrease in demand graph

Price
Price is the most important determinant of
demand.
A demand curve plots combinations of
prices and quantity demanded.
A shift in price causes a shift along the
demand curve

Increase in demand graph

Decrease in demand graph

Price (continued)
A change in price causes a shift along the
demand curve.
A shift along the demand curve is referred
to as a shift in the quantity demanded.
A shift in any other variable except price
causes a shift in the entire demand curve.
A shift in the entire demand curve is
referred to as a shift in demand.
Increase in demand graph

Decrease in demand graph

Income
Changes in income can increase or decrease
demand.
A good whose demand decreases with an
increase in income is called an inferior
good.
A good whose demand increases with an
increase in income is called a normal
good.
Increase in demand graph

Decrease in demand graph

Examples of changes in income

An increase in income will reduce the
demand for ramen noodles or generic
products.
An increase in income will increase the
demand for cars or clothing.
An increase in income will significantly
increase the demand for air travel or
jewelry.
Increase in demand graph

Decrease in demand graph

Prices of other goods

Changes in the prices of other goods can
increase or decrease demand.
A good that causes an increase in the
demand for another good when its price
increases is called a substitute good.
A good that causes a decrease in the
demand for another good when its price
increases is called a complementary good.
Increase in demand graph

Decrease in demand graph

Examples of changes in other

prices
An increase in the price of peanut butter
will reduce the demand for jelly. Peanut
butter and jelly are complements.
An increase in the price of Pepsi will
increase the demand for Coke. Pepsi and
Coke are substitutes.
Increase in demand graph

Decrease in demand graph

Number of buyers
An increase in the number of potential
buyers will increase the demand for the
good.
For example, the demand for land increases
as the population increases.
Similarly baseball tickets are generally
more expensive in larger cities.

Increase in demand graph

Decrease in demand graph

Future Prices
An increase in the expected future price of a
good increases current demand.
A decrease in the expected future price of a
good decreases current demand.
For example, when a good is temporarily
put on sale, people stock up on the good.

Increase in demand graph

Decrease in demand graph

Tastes
Demand curves can shift due to changes in
tastes over time.
For example, demand for cereal may be
high in the morning but low at night.
Similarly, demand for Saturday Night Fever
CDs may be high in the 1970s but low in
the 2000s.

Increase in demand graph

Decrease in demand graph

Quality
Demand curves can shift due to changes
quality.
At a given price, demand for Giordanos
pizza is higher than the demand for Papa
Johns.
Similarly, CDs cost more than cassettes
because the music is of higher quality.

Increase in demand graph

Decrease in demand graph

Supply?
Demand curves do not shift due to changes
supply.
Shifts in supply change the equilibrium
price causing a shift along the demand
curve.
Shifts in supply cause a change in the
quantity demand not a shift in the demand
curve.
Increase in demand graph

Decrease in demand graph

Price

Graph of a supply shift

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Quantity
Old demand

New supply

Increase in demand graph

Supply

An decrease in
supply shifts the
supply curve to
the left.
Equilibrium
price increases.
Quantity
demanded
decreases.
Decrease in demand graph

Price

Increase in demand

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Quantity
Old demand

New demand

Increase in demand graph

An increase in
demand shifts the
demand curve to
the right.
Equilibrium price
increases.
Quantity demanded
increases.

Supply

Decrease in demand graph

Price

Decrease in demand

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35
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25
20
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Quantity
Old demand

New demand

Increase in demand graph

A decrease in
demand shifts
the demand
curve to the left.
Equilibrium
price falls.
Quantity
demanded falls.

Supply

Decrease in demand graph