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♪ [music] ♪

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- [Tyler] In previous videos,

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we've covered the basics
of the demand curve.

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Now let's discuss what happens
when the demand curve shifts,

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due to increases or decreases
in market demand.

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First, let's look at
an increase in demand.

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An increase in demand

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means that the demand curve
shifts up and to the right.

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Take the market
for houseplants, for instance.

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On the old demand curve at $20,

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the quantity demanded
was five plants,

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but on the new demand curve
at, again, $20,

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the quantity demanded
is eight plants.

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At $16, we go from six plants
to nine plants.

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At $12, we go from seven
to ten plants, and so on.

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An increase in demand

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is a greater quantity
demanded at every price.

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We can also read
an increase in demand

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using what is called
the vertical method.

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What that means
is that for every quantity,

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there's a greater willingness
to pay for that quantity.

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For instance, for the fifth unit,

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people had been willing
to pay $20 for that unit.

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Now with the new demand curve,

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people are willing to pay
$32 for that unit.

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In summary, an increase in demand

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means an increase
in the quantity demanded

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at every market price,

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or equivalently, 
it means an increase

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in the maximum willingness
to pay for a given quantity.

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A decrease in demand --

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well, that's just the opposite
of an increase in demand.

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It's a shift down and to the left.

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There's a decrease in quantity
demanded at every price.

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Now at $20, people only want
to buy two houseplants.

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At $16, we go from six
to three houseplants and so on.

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Similarly, this means a decrease

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in the willingness to pay
for the same quantity.

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For the fifth unit,

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people were willing to pay
$20 for that unit,

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but now they're only going
to fork over $8

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for that houseplant.

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So what can cause
a shift in demand?

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What would make consumers
buy more or less of a good

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at every price?

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Take a moment
to jot down some guesses.

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We'll go through these
with a few examples.

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But the real goal
is not to memorize this list

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but rather to understand

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what an increase
or decrease in demand means

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so that you can recreate
this list on your own.

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Let's now go through five factors

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that can increase
or decrease market demand,

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namely income, population, tastes,

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the price of related goods,

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and finally, expectations.

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Let's start with changes in income.

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The effect of a change
in income on demand,

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depends on the nature
of the good in question.

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For most goods, 
as your income goes up,

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you demand more of the good.

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Think, for instance, fine dining.

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You need to be able
to afford it, right?

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The demand curve then shifts up
and to the right.

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These goods are called normal goods

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because the demand for them
goes up when incomes go up,

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and indeed most goods
are normal goods --

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that's why we call them normal.

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And these same goods --

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the demand for them goes down
when incomes go down.

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There are also goods, however,

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for which, 
when your income goes up,

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your demand for them
actually goes down.

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These are exceptions.

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We call them inferior goods.

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So an example
of such an inferior good

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might be instant ramen --

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it's very cheap.

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As you make more money,
you might buy, say,

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more caviar, more steak,
and less instant ramen.

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- [voice] No, thanks!

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- [Tyler] Thus, the demand curve
for instant ramen

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will shift down into the left
as your income increases.

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Now let's move on
to changes in population.

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If the population
of an economy changes,

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the number of potential buyers
of a good changes also.

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What would happen
to the demand for hearing aids

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if the elderly population
in your country increased?

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Well, very likely, demand
for hearing aids would increase.

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At any price
for those hearing aids,

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there would be
a higher quantity demanded.

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Can you think of a good
that would decrease in demand

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if the birth rates
in your country decreased?

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Now, we'll move on
to changes in tastes.

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Tastes are subjective,
and they're changing all the time.

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New information, fashions, and fads
all can impact tastes.

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To give an example,

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what happens to the demand
for hamburgers

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if low-carb diets,

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like the keto diet
or the caveman diet

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become more popular?

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Well, people would want to go out
and buy and eat more hamburgers,

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and so the demand for hamburgers
would increase.

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Alternatively, 
what if a controversy surfaced

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that questioned the ethics
of hamburger production?

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People might then feel bad
about buying hamburgers,

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and then they would buy
fewer hamburgers

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or maybe stop
buying them altogether.

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The demand for hamburgers
then would go down.

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Next, let's consider how the price
of a related good

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can affect demand,

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starting with substitute goods.

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Now substitutes are two goods
that are roughly interchangeable.

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They're not the same,

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but they can serve
broadly similar functions.

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Take for instance, 
hot dogs and hamburgers.

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They're both something
you might have for dinner.

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Now in the setting,

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suppose the price
of hot dogs goes up.

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What happens to the demand
for hamburgers --

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a substitute for hot dogs?

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People will opt to buy

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the relatively less expensive
hamburgers,

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instead of the now
more expensive hot dogs.

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That means the demand
for hamburgers increases.

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Or consider
the opposite occurrence.

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What if the price
of hot dogs decreases

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instead of going up?

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What happens then
to the demand for hamburgers?

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Well, that's just the opposite
of the first scenario.

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Hot dogs are now cheaper,

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and the demand
for hamburgers decreases

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because it now costs less
to buy hot dogs instead.

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Technically, 
two goods are substitutes

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if an increase
in the price of one good

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leads to an increase in demand
for the other good and vice versa.

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Another kind of related good

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is what economists
call complements.

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Complements are two goods
which are often used together

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and make each other more valuable.

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Suppose the price
of hamburgers increases.

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What happens to the demand
for hamburger buns --

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a complement
to hamburgers [proper]?

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Well, fewer people
will buy hamburgers,

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and so fewer people
will buy hamburger buns.

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The demand
for hamburger buns decreases.

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And to consider
the opposite situation,

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if the price
of hamburger decreases,

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demand for hamburger buns
will increase --

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that is, more people
buying hamburger

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means more people
buying hamburger buns as well

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because again, you're putting
the hamburger and the bun together.

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Technically, two goods
are complements

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if an increase
in the price of one good

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leads to a decrease
in the demand for the other,

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and vice versa.

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So in sum, hamburger producers

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want the price
of hot dogs to go up,

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the price of hamburger buns
to go down,

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and low carb diets to go viral.

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Finally, let's look
at expectations.

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These can be expectations
of market prices

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or of market events.

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Consider video game consoles.

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If it's November,

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and people expect the price
of a gaming console to go down

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in a December holiday sale,

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they might wait a few weeks
before buying the console.

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Demand for that console
decreases today

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because it's going
to increase later on.

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Or take batteries.

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Suppose you hear there's going
to be a big hurricane in your area.

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If a hurricane hits,

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you might expect the price
of batteries is going to go up,

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or maybe it will be really hard
to get any batteries at all.

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- [voice] Oh no!

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- [Tyler] That means a higher
demand for batteries today,

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and so the expectation

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of this future event
of the hurricane

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can change the demand
for batteries today.

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If people expect
the price of a good

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to be higher in the future,

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that typically increases
demand today.

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Consumers adjust
their current spending

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anticipating the future prices

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to obtain
the lowest price possible.

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And that's it
for our list of shifters.

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Now that you understand
what a shift in demand means,

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practice recreating
this list of shifters on your own.

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What would cause
a higher quantity demanded

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at every price?

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More people? Wealthier people?

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It's the hotter in-item and so on.

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Conversely, what would cause
less of a good

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to be demanded at every price?

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Once you can do that,

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you'll be able to identify
demand shifters

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without the need
to memorize any list.

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- [Narrator] If you're a teacher,

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you should check out
our supply and demand unit plan

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that incorporates this video.

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If you're a learner,

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make sure this video sticks

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by answering a few quick, 
practice questions.

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Or if you're ready
for more microeconomics,

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click for the next video.

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♪ [music] ♪