Factors Affecting Demand

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Factors Affecting Demand

• Chapter 4.2

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Did You Know?

• In 1983, the first audio compact discs were
  introduced to US consumers. Within five years,
  record companies had begun to phase out the vinyl
  albums on which music traditionally played
  because sales figures had shown that consumers
  preferred CD technology. Then came the mp3

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I. Change in Quantity Demanded

• The change in quantity demanded shows a change
  in the amount of a product purchased when there
  is a change in price.
• The income effect means that as prices drop,
  consumers are left with extra real income.
• The substitution effect means that price can
  cause consumers to substitute one product with
  another similar but cheaper item.

4
Discuss

• You buy groceries once a week. Thanks to a
  constitutional amendment that allows dairy
  farmers to receive state money to subsidize
  production, the cost of milk, cheese, and coffee
  creamer drops.
• On your next grocery bill, you discover you spent
  35.87 less than last week.
• Has your real income increased?

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II. Changes in Demand

• A change in demand is when people buy different
  amounts of the product at the same prices.
• A change in demand can be caused by a change in
  income, tastes, a price change in a related
  product (either because it is a substitute or a
  compliment), consumer expectations, and the
  number of buyers.

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Bonus Features

• Substitutes are goods that can be used in place
  of other goods (i.e. butter and margarine). As
  price changes, use of these goods can change.
• Complements are related goods that increase in
  usage as other related goods increase (CPU and
  software guitars and amplifiers motorcycles and
  helmets).

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123Talk

• Although cds are by far todays most popular form
  of musical recording, interest in vinyls is
  growing.
• What might happen to the demand for vinyls as
  interest increases?