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- [Tyler] In previous videos,

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we've covered the basics[br]of the demand curve.

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

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due to increases or decreases[br]in market demand.

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

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An increase in demand

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means that the demand curve[br]shifts up and to the right.

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Take the market[br]for houseplants, for instance.

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On the old demand curve at $20,

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the quantity demanded[br]was five plants,

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but on the new demand curve[br]at, again, $20,

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the quantity demanded[br]is eight plants.

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

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

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An increase in demand

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is a greater quantity[br]demanded at every price.

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We can also read[br]an increase in demand

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using what is called[br]the vertical method.

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What that means[br]is that for every quantity,

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

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For instance, for the fifth unit,

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people had been willing[br]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[br]$32 for that unit.

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In summary, an increase in demand

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means an increase[br]in the quantity demanded

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at every market price.

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Or equivalently, [br]it means an increase

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in the maximum willingness[br]to pay for a given quantity.

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A decrease in demand --

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well, that's just the opposite[br]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[br]demanded at every price.

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

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

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Similarly, this means a decrease

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in the willingness to pay[br]for the same quantity.

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For the fifth unit,

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people were willing to pay[br]$20 for that unit,

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

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for that houseplant.

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So what can cause[br]a shift in demand?

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What would make consumers[br]buy more or less of a good

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at every price?

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Take a moment[br]to jot down some guesses.

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We'll go through these[br]with a few examples.

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But the real goal[br]is not to memorize this list

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but rather to understand

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what an increase[br]or decrease in demand means

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so that you can recreate[br]this list on your own.

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Let's now go through five factors

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that can increase[br]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[br]in income on demand

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depends on the nature[br]of the good in question.

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For most goods, [br]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[br]to afford it, right?

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The demand curve then shifts up[br]and to the right.

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These goods are called normal goods

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because the demand for them[br]goes up when incomes go up,

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and indeed most goods[br]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[br]when incomes go down.

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There are also goods, however,

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for which, [br]when your income goes up,

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your demand for them[br]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[br]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,[br]you might buy, say,

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more caviar, more steak,[br]and less instant ramen.

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- [voice] No, thanks!

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

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will shift down into the left[br]as your income increases.

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Now let's move on[br]to changes in population.

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If the population[br]of an economy changes,

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the number of potential buyers[br]of a good changes also.

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What would happen[br]to the demand for hearing aids

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if the elderly population[br]in your country increased?

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Well, very likely, demand[br]for hearing aids would increase.

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At any price[br]for those hearing aids,

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there would be[br]a higher quantity demanded.

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Can you think of a good[br]that would decrease in demand

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if the birth rates[br]in your country decreased?

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

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

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New information, fashions, and fads[br]all can impact tastes.

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To give an example,

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what happens to the demand[br]for hamburgers

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if low-carb diets,

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like the keto diet[br]or the caveman diet

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become more popular?

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

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and so the demand for hamburgers[br]would increase.

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Alternatively, [br]what if a controversy surfaced

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that questioned the ethics[br]of hamburger production?

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People might then feel bad[br]about buying hamburgers,

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and then they would buy[br]fewer hamburgers

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or maybe stop[br]buying them altogether.

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The demand for hamburgers[br]then would go down.

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Next, let's consider how the price[br]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[br]that are roughly interchangeable.

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They're not the same,

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but they can serve[br]broadly similar functions.

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Take, for instance, [br]hot dogs and hamburgers --

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they're both something[br]you might have for dinner.

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Now in the setting,

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suppose the price[br]of hot dogs goes up.

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What happens to the demand[br]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[br]hamburgers,

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instead of the now[br]more expensive hot dogs.

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That means the demand[br]for hamburgers increases.

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Or consider[br]the opposite occurrence.

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What if the price[br]of hot dogs decreases,

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instead of going up?

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What happens then[br]to the demand for hamburgers?

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

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Hot dogs are now cheaper,

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and the demand[br]for hamburgers decreases

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because it now costs less[br]to buy hot dogs instead.

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Technically, [br]two goods are substitutes

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if an increase[br]in the price of one good

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

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Another kind of related good

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is what economists[br]call complements.

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Complements are two goods[br]which are often used together

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and make each other more valuable.

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Suppose the price[br]of hamburgers increases.

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What happens to the demand[br]for hamburger buns --

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a complement[br]to hamburgers [proper]?

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Well, fewer people[br]will buy hamburgers,

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and so fewer people[br]will buy hamburger buns.

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The demand[br]for hamburger buns decreases.

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And to consider[br]the opposite situation,

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if the price[br]of hamburger decreases,

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demand for hamburger buns[br]will increase --

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that is, more people[br]buying hamburger

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means more people[br]buying hamburger buns as well

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

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Technically, two goods[br]are complements

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if an increase[br]in the price of one good

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leads to a decrease[br]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[br]of hot dogs to go up,

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the price of hamburger buns[br]to go down,

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and low-carb diets to go viral.

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Finally, let's look[br]at expectations.

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These can be expectations[br]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[br]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[br]before buying the console.

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Demand for that console[br]decreases today

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because it's going[br]to increase later on.

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Or take batteries.

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Suppose you hear there's going[br]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[br]of batteries is going to go up,

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

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- [voice] Oh no!

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

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and so the expectation

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of this future event[br]of the hurricane

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can change the demand[br]for batteries today.

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If people expect[br]the price of a good

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to be higher in the future --

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that typically increases[br]demand today.

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Consumers adjust[br]their current spending

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anticipating the future prices

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to obtain[br]the lowest price possible.

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And that's it[br]for our list of shifters.

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Now that you understand[br]what a shift in demand means,

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practice recreating[br]this list of shifters on your own.

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What would cause[br]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[br]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[br]demand shifters

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without the need[br]to memorize any list.

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- [Narrator] If you're a teacher,

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you should check out[br]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 [br]practice questions.

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Or if you're ready[br]for more microeconomics,

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click for the next video.

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♪ [music] ♪