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Factors Affecting Demand

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Economic Definitions

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Factors Affecting Demand

  1. 1. Factors Affecting Demand What Factors affect Demand?
  2. 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. 3. Factors that Change Demand  Factors that directly affect Demand can include:  Consumer Income  Expectations  Population Change  Tastes and Trends
  4. 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. 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. 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. 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