1 00:00:12,500 --> 00:00:16,300 In previous videos, we've covered the basics of the demand curve. 2 00:00:16,300 --> 00:00:19,700 Now let's discuss what happens when the demand curve shifts 3 00:00:20,000 --> 00:00:23,026 due to increases or decreases in market demand. 4 00:00:23,026 --> 00:00:26,100 First, let's look at an increase in demand. 5 00:00:26,700 --> 00:00:28,057 An increase in demand 6 00:00:28,057 --> 00:00:31,600 means that the demand curve shifts up and to the right. 7 00:00:32,400 --> 00:00:35,250 Take the market for house plants, for instance. 8 00:00:35,250 --> 00:00:38,100 On the old demand curve at $20, 9 00:00:38,400 --> 00:00:41,572 the quantity demanded was five plants, 10 00:00:41,572 --> 00:00:44,991 but on the new demand curve at, again, $20, 11 00:00:44,991 --> 00:00:47,413 the quantity demanded is eight plants. 12 00:00:48,500 --> 00:00:52,200 At $16, we go from six plants to nine plants. 13 00:00:53,500 --> 00:00:57,500 At $12, we go from seven to ten plants, and so on. 14 00:00:57,900 --> 00:01:02,400 An increase in demand is a greater quantity demanded at every price. 15 00:01:03,000 --> 00:01:05,303 We can also read an increase in demand 16 00:01:05,303 --> 00:01:07,800 using what is called the vertical method. 17 00:01:08,000 --> 00:01:10,100 What that means is that for every quantity, 18 00:01:10,300 --> 00:01:13,200 there's a greater willingness to pay for that quantity. 19 00:01:13,500 --> 00:01:15,628 For instance, for the fifth unit, 20 00:01:15,628 --> 00:01:19,100 people had been willing to pay $20 for that unit. 21 00:01:19,300 --> 00:01:20,992 Now with the new demand curve, 22 00:01:20,992 --> 00:01:24,393 people are willing to pay $32 for that unit. 23 00:01:25,100 --> 00:01:27,500 In summary, an increase in demand 24 00:01:27,500 --> 00:01:30,136 means an increase in the quantity demanded 25 00:01:30,136 --> 00:01:32,148 at every market price, 26 00:01:32,148 --> 00:01:34,757 or equivalently, it means an increase 27 00:01:34,757 --> 00:01:38,273 in the maximum willingness to pay for a given quantity. 28 00:01:39,400 --> 00:01:40,700 A decrease in demand-- 29 00:01:40,800 --> 00:01:43,728 well, that's just the opposite of an increase in demand. 30 00:01:43,728 --> 00:01:46,000 It's a shift down and to the left. 31 00:01:46,600 --> 00:01:50,762 There's a decrease in quantity demanded at every price. 32 00:01:50,762 --> 00:01:55,200 Now at $20, people only want to buy two houseplants. 33 00:01:56,100 --> 00:02:00,300 At $16, we go from six to three house plants and so on. 34 00:02:01,100 --> 00:02:03,624 Similarly, this means a decrease 35 00:02:03,624 --> 00:02:06,400 in the willingness to pay for the same quantity. 36 00:02:06,800 --> 00:02:08,175 For the fifth unit, 37 00:02:08,175 --> 00:02:11,373 people were willing to pay $20 for that unit 38 00:02:11,373 --> 00:02:13,964 but now they're only going to fork over $8 39 00:02:13,964 --> 00:02:15,181 for that house plan. 40 00:02:16,500 --> 00:02:19,400 So what can cause a shift in demand? 41 00:02:20,000 --> 00:02:24,100 What would make consumers buy more or less of a good at every price? 42 00:02:24,800 --> 00:02:28,400 Take a moment to jot down some guesses. 43 00:02:29,994 --> 00:02:32,144 We'll go through these with a few examples. 44 00:02:32,144 --> 00:02:34,900 But the real goal is not to memorize this list 45 00:02:35,200 --> 00:02:36,606 but rather to understand 46 00:02:36,606 --> 00:02:39,600 what an increase or decrease in demand means 47 00:02:39,900 --> 00:02:42,500 so that you can recreate this list on your own. 48 00:02:43,000 --> 00:02:45,115 Let's now go through five factors 49 00:02:45,115 --> 00:02:48,057 that can increase or decrease market demand, 50 00:02:48,057 --> 00:02:51,817 namely income, population, tastes, 51 00:02:51,817 --> 00:02:53,803 the price of related goods, 52 00:02:53,803 --> 00:02:55,600 and finally, expectations. 53 00:02:56,600 --> 00:02:58,900 Let's start with changes in income. 54 00:02:59,500 --> 00:03:02,300 The effect of a change in income on demand, 55 00:03:02,400 --> 00:03:05,595 depends on the nature of the good in question. 56 00:03:05,595 --> 00:03:07,800 For most goods, as your income goes up, 57 00:03:07,900 --> 00:03:09,992 you demand more of the good. 58 00:03:09,992 --> 00:03:12,049 Think, for instance, fine dining. 59 00:03:12,049 --> 00:03:14,101 You need to be able to afford it, right? 60 00:03:14,800 --> 00:03:18,183 The demand curve then shifts up and to the right. 61 00:03:18,183 --> 00:03:20,400 These goods are called normal goods 62 00:03:20,800 --> 00:03:23,900 because the demand for them goes up when incomes go up, 63 00:03:23,900 --> 00:03:26,150 and indeed most goods are normal goods-- 64 00:03:26,150 --> 00:03:27,849 that's why we call them normal. 65 00:03:28,300 --> 00:03:30,029 And these same goods-- 66 00:03:30,029 --> 00:03:33,795 the demand for them goes down when incomes go down. 67 00:03:34,900 --> 00:03:36,400 There are also goods, however, 68 00:03:36,700 --> 00:03:38,950 for which, when your income goes up, 69 00:03:38,950 --> 00:03:41,200 your demand for them actually goes down. 70 00:03:41,700 --> 00:03:44,800 These are exceptions. We call them inferior goods. 71 00:03:45,200 --> 00:03:47,791 So, an example of such an inferior good 72 00:03:47,791 --> 00:03:49,779 might be instant ramen-- 73 00:03:49,779 --> 00:03:51,100 it's very cheap. 74 00:03:52,000 --> 00:03:54,600 As you make more money, you might buy, say, 75 00:03:54,600 --> 00:03:58,826 more caviar, more steak, and less instant ramen. 76 00:03:58,826 --> 00:03:59,840 No, thanks! 77 00:03:59,840 --> 00:04:02,367 Thus, the demand curve for instant ramen 78 00:04:02,367 --> 00:04:06,080 will shift down into the left as your income increases. 79 00:04:06,800 --> 00:04:10,759 Now let's move on to changes in population. 80 00:04:10,759 --> 00:04:13,400 If the population of an economy changes, 81 00:04:13,700 --> 00:04:18,479 the number of potential buyers of a good changes also. 82 00:04:18,479 --> 00:04:21,188 What would happen to the demand for hearing aids 83 00:04:21,188 --> 00:04:24,400 if the elderly population in your country increased? 84 00:04:24,600 --> 00:04:27,900 Well, very likely demand for hearing aids would increase. 85 00:04:28,300 --> 00:04:30,552 At any price for those hearing aids, 86 00:04:30,552 --> 00:04:33,100 there would be a higher quantity demanded. 87 00:04:38,900 --> 00:04:41,700 Can you think of a good that would decrease in demand 88 00:04:41,700 --> 00:04:44,000 if the birth rates in your country decreased? 89 00:04:45,200 --> 00:04:48,000 Now, we'll move on to changes in tastes. 90 00:04:48,300 --> 00:04:51,100 Tastes are subjective, and they're changing all the time. 91 00:04:51,400 --> 00:04:56,234 New information, fashions, and fads all can impact tastes. 92 00:04:56,234 --> 00:04:57,300 To give an example, 93 00:04:57,700 --> 00:05:00,000 what happens to the demand for hamburgers 94 00:05:00,000 --> 00:05:01,945 if low-carb diets, 95 00:05:01,945 --> 00:05:04,411 like the keto diet or the caveman diet 96 00:05:04,411 --> 00:05:05,600 become more popular? 97 00:05:06,200 --> 00:05:10,200 Well, people would want to go out and buy and eat more hamburgers, 98 00:05:10,200 --> 00:05:13,400 and so the demand for hamburgers would increase. 99 00:05:14,342 --> 00:05:17,471 Alternatively, what if a controversy surfaced 100 00:05:17,471 --> 00:05:20,600 that questioned the ethics of hamburger production? 101 00:05:21,100 --> 00:05:23,900 People might then feel bad about buying hamburgers, 102 00:05:24,100 --> 00:05:26,250 and then they would buy fewer hamburgers 103 00:05:26,250 --> 00:05:28,400 or maybe stop buying them altogether. 104 00:05:28,900 --> 00:05:31,900 The demand for hamburgers then would go down. 105 00:05:33,220 --> 00:05:37,089 Next, let's consider how the price of a related good 106 00:05:37,089 --> 00:05:41,022 can affect demand starting with substitute goods. 107 00:05:41,390 --> 00:05:45,206 Now substitutes are two goods that are roughly interchangeable. 108 00:05:45,206 --> 00:05:46,232 They're not the same 109 00:05:46,232 --> 00:05:49,283 but they can serve broadly similar functions. 110 00:05:49,283 --> 00:05:51,500 Take for instance, hot dogs and hamburgers. 111 00:05:51,800 --> 00:05:54,000 They're both something you might have for dinner. 112 00:05:54,500 --> 00:05:55,614 Now in the setting, 113 00:05:55,614 --> 00:05:58,000 suppose the price of hot dogs goes up. 114 00:05:58,500 --> 00:06:00,609 What happens to the demand for hamburgers? 115 00:06:00,609 --> 00:06:02,400 A substitute for hot dogs. 116 00:06:03,100 --> 00:06:04,552 People will opt to buy 117 00:06:04,552 --> 00:06:07,687 the relatively less expensive hamburgers, 118 00:06:07,687 --> 00:06:10,786 instead of the now more expensive hot dogs. 119 00:06:13,100 --> 00:06:15,900 That means the demand for hamburgers increases. 120 00:06:17,000 --> 00:06:19,200 Or consider the opposite occurrence. 121 00:06:19,700 --> 00:06:22,490 What if the price of hot dogs decreases 122 00:06:22,490 --> 00:06:23,661 instead of going up? 123 00:06:23,661 --> 00:06:26,684 What happens then to the demand for hamburgers? 124 00:06:26,684 --> 00:06:29,300 Well, that's just the opposite of the first scenario. 125 00:06:29,500 --> 00:06:31,004 Hot dogs are now cheaper, 126 00:06:31,004 --> 00:06:33,988 and the demand for hamburgers decreases 127 00:06:33,988 --> 00:06:37,100 because it now costs less to buy hot dogs instead. 128 00:06:38,000 --> 00:06:40,500 Technically, two goods are substitutes 129 00:06:40,600 --> 00:06:42,861 if an increase in the price of one good 130 00:06:42,861 --> 00:06:47,000 leads to an increase in demand for the other good and vice versa. 131 00:06:48,300 --> 00:06:49,899 Another kind of related good 132 00:06:49,899 --> 00:06:52,200 is what economists call compliments. 133 00:06:52,700 --> 00:06:55,826 Compliments are two goods which are often used together 134 00:06:55,826 --> 00:06:57,826 and make each other more valuable. 135 00:06:58,300 --> 00:07:01,000 Suppose the price of hamburgers increases. 136 00:07:01,600 --> 00:07:04,600 What happens to the demand for hamburger buns, 137 00:07:04,800 --> 00:07:07,100 a complement to hamburgers proper? 138 00:07:07,900 --> 00:07:10,600 Well, fewer people will buy hamburgers 139 00:07:11,000 --> 00:07:14,000 and so fewer people will buy hamburger buns. 140 00:07:14,300 --> 00:07:17,700 The demand for hamburger buns decreases. 141 00:07:18,600 --> 00:07:21,200 And to consider the opposite situation, 142 00:07:21,500 --> 00:07:23,952 if the price of hamburger decreases, 143 00:07:23,952 --> 00:07:26,600 demand for hamburger buns will increase-- 144 00:07:27,000 --> 00:07:29,570 that is, more people buying hamburger 145 00:07:29,570 --> 00:07:32,421 means more people buying hamburger buns as well 146 00:07:32,421 --> 00:07:33,890 because again, you're putting the hamburger 147 00:07:33,890 --> 00:07:35,200 and the bun together. 148 00:07:35,800 --> 00:07:38,100 Technically, two goods are complements 149 00:07:38,300 --> 00:07:40,500 if an increase in the price of one good 150 00:07:40,600 --> 00:07:43,299 leads to a decrease in the demand for the other 151 00:07:43,299 --> 00:07:44,600 and vice versa. 152 00:07:45,400 --> 00:07:47,485 So in sum, hamburger producers 153 00:07:47,485 --> 00:07:49,570 want the price of hot dogs to go up, 154 00:07:49,900 --> 00:07:52,250 the price of hamburger buns to go down, 155 00:07:52,250 --> 00:07:54,600 and low carb diets to go viral. 156 00:07:54,900 --> 00:07:57,400 Finally, let's look at expectations. 157 00:07:57,800 --> 00:08:00,554 These can be expectations of market prices 158 00:08:00,554 --> 00:08:01,800 or of market events. 159 00:08:02,000 --> 00:08:04,000 Consider video game consoles. 160 00:08:04,500 --> 00:08:05,707 If it's November, 161 00:08:05,707 --> 00:08:09,171 and people expect the price of the gaming console to go down 162 00:08:09,171 --> 00:08:11,000 in a December holiday sale, 163 00:08:11,400 --> 00:08:14,300 they might wait a few weeks before buying the console. 164 00:08:15,000 --> 00:08:18,136 Demand for that console decreases today 165 00:08:18,136 --> 00:08:20,368 because it's going to increase later on. 166 00:08:21,200 --> 00:08:22,600 Or take batteries. 167 00:08:22,900 --> 00:08:26,100 Suppose you hear there's going to be a big hurricane in your area 168 00:08:26,800 --> 00:08:28,000 if a hurricane hits, 169 00:08:28,200 --> 00:08:31,400 you might expect the price of batteries is going to go up, 170 00:08:31,600 --> 00:08:34,779 or maybe it will be really hard to get any batteries at all. 171 00:08:34,779 --> 00:08:35,644 Oh no! 172 00:08:35,644 --> 00:08:38,656 That means a higher demand for batteries today, 173 00:08:38,656 --> 00:08:40,278 and so the expectation 174 00:08:40,278 --> 00:08:41,900 of this future event of the hurricane 175 00:08:42,000 --> 00:08:44,700 can change the demand for batteries today. 176 00:08:45,600 --> 00:08:47,350 If people expect the price of a good 177 00:08:47,350 --> 00:08:49,100 to be higher in the future, 178 00:08:49,600 --> 00:08:52,300 that typically increases demand today. 179 00:08:52,700 --> 00:08:54,800 Consumers adjust their current spending 180 00:08:54,800 --> 00:08:56,900 anticipating the future prices 181 00:08:57,100 --> 00:08:59,758 to obtain the lowest price possible. 182 00:08:59,758 --> 00:09:01,900 And that's it for our list of shifters. 183 00:09:02,700 --> 00:09:05,600 Now that you understand what a shift in demand means, 184 00:09:05,800 --> 00:09:09,100 practice recreating this list of shifters on your own. 185 00:09:09,900 --> 00:09:12,278 What would cause a higher quantity demanded 186 00:09:12,278 --> 00:09:13,300 at every price? 187 00:09:13,600 --> 00:09:15,200 More people? Wealthier people? 188 00:09:15,400 --> 00:09:17,800 It's the hotter in item and so on. 189 00:09:18,400 --> 00:09:20,950 Conversely, what would cause less of a good 190 00:09:20,950 --> 00:09:23,500 to be demanded at every price? 191 00:09:24,100 --> 00:09:25,411 Once you can do that, 192 00:09:25,411 --> 00:09:28,000 you'll be able to identify demand shifters 193 00:09:28,200 --> 00:09:31,000 without the need to memorize any list. 194 00:09:33,400 --> 00:09:34,360 If you're a teacher, 195 00:09:34,360 --> 00:09:36,722 you should check out our supply and demand unit plan 196 00:09:36,722 --> 00:09:38,100 that incorporates this video. 197 00:09:38,400 --> 00:09:39,400 If you're a learner, 198 00:09:39,400 --> 00:09:41,086 make sure this video sticks 199 00:09:41,086 --> 00:09:43,200 by answering a few quick, practice questions. 200 00:09:43,600 --> 00:09:45,870 Or if you're ready for more microeconomics, 201 00:09:45,870 --> 00:09:47,303 click for the next video,