Economic Definitions

1. Factors Affecting
Demand
What Factors affect Demand?

2. Demand Changes Why?
 There are many factors beyond price that can cause changes in
demand.
 Because these changes can be difficult to predict, short lived, or
relative, Demand Schedules and Demand Curve Graphs cannot
adequately address them as they show change in quantity
demanded in relation to the single factor of price.
 Changes in these other aspects do not cause movement along
a Demand Curve; they move the Demand Curve itself!
 Changes that increase overall demand shift the Demand Curve
to the right as the quantity demanded increases at all prices.
 Changes that decrease overall demand shift the Demand Curve
to the left as the quantity demanded decreases at all prices.

3. Factors that Change Demand
 Factors that directly affect
Demand can include:
 Consumer Income
 Expectations
 Population Change
 Tastes and Trends

4. Consumer Income
 Increases in consumer income
generally lead to an increase in
the demand for goods, while
decreases in consumer income
have the opposite effect.
 Goods whose demand
increases as income increases
are referred to as Normal
Goods.
 Goods whose demand
decreases as income increases
are referred to as Inferior Goods
because they are replaced by
higher quality goods.
 Examples:
 DVD’s = Normal
 Houses = Normal
 Generic = Inferior

5. Expectations
 Consumer expectations
regarding price changes directly
affect demand.
 If consumers feel prices for a
good will drop soon, they will
wait to purchase the good at a
later date and a lower price.
 If prices are expected to rise,
consumers will purchase the
good now as opposed to waiting
and risking paying more.
 Examples:
 Gasoline
 Non-Perishable Food
 Cars and Houses

6. Population Change
 As population increases, the
demand for goods increases
as well because each
member of the population
has needs to be filled.
 However, these needs
change over time as
segments of the population
age and their wants and
needs change.
 Examples:
 Education
 Recreational Materials
 Housing

7. Tastes and Trends
 Consumers are notoriously
fickle about the types and
styles of goods that they
consume.
 Goods that are extremely
popular one year may have
little or no demand on them
the next.
 Predicting these trends, and
adapting production to them,
is extremely difficult.
 Examples:
 Beanie Babies
 Pokimon Cards
 Tie-Dye Clothes