The Demand Curve Shifts

♪ [music] ♪

- [Tyler] In previous videos,

we've covered the basics
of the demand curve.

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

due to increases or decreases
in market demand.

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

An increase in demand

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

Take the market
for houseplants, for instance.

On the old demand curve at $20,

the quantity demanded
was five plants,

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

the quantity demanded
is eight plants.

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

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

An increase in demand

is a greater quantity
demanded at every price.

We can also read
an increase in demand

using what is called
the vertical method.

What that means
is that for every quantity,

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

For instance, for the fifth unit,

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

Now with the new demand curve,

people are willing to pay
$32 for that unit.

In summary, an increase in demand

means an increase
in the quantity demanded

at every market price,

or equivalently,
it means an increase

in the maximum willingness
to pay for a given quantity.

A decrease in demand --

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

It's a shift down and to the left.

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

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

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

Similarly, this means a decrease

in the willingness to pay
for the same quantity.

For the fifth unit,

people were willing to pay
$20 for that unit,

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

for that houseplant.

So what can cause
a shift in demand?

What would make consumers
buy more or less of a good

at every price?

Take a moment
to jot down some guesses.

We'll go through these
with a few examples.

But the real goal
is not to memorize this list

but rather to understand

what an increase
or decrease in demand means

so that you can recreate
this list on your own.

Let's now go through five factors

that can increase
or decrease market demand,

namely income, population, tastes,

the price of related goods,

and finally, expectations.

Let's start with changes in income.

The effect of a change
in income on demand,

depends on the nature
of the good in question.

For most goods,
as your income goes up,

you demand more of the good.

Think, for instance, fine dining.

You need to be able
to afford it, right?

The demand curve then shifts up
and to the right.

These goods are called normal goods

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

and indeed most goods
are normal goods --

that's why we call them normal.

And these same goods --

the demand for them goes down
when incomes go down.

There are also goods, however,

for which,
when your income goes up,

your demand for them
actually goes down.

These are exceptions.

We call them inferior goods.

So an example
of such an inferior good

might be instant ramen --

it's very cheap.

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

more caviar, more steak,
and less instant ramen.

- [voice] No, thanks!

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

will shift down into the left
as your income increases.

Now let's move on
to changes in population.

If the population
of an economy changes,

the number of potential buyers
of a good changes also.

What would happen
to the demand for hearing aids

if the elderly population
in your country increased?

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

At any price
for those hearing aids,

there would be
a higher quantity demanded.

Can you think of a good
that would decrease in demand

if the birth rates
in your country decreased?

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

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

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

To give an example,

what happens to the demand
for hamburgers

if low-carb diets,

like the keto diet
or the caveman diet

become more popular?

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

and so the demand for hamburgers
would increase.

Alternatively,
what if a controversy surfaced

that questioned the ethics
of hamburger production?

People might then feel bad
about buying hamburgers,

and then they would buy
fewer hamburgers

or maybe stop
buying them altogether.

The demand for hamburgers
then would go down.

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

can affect demand,

starting with substitute goods.

Now substitutes are two goods
that are roughly interchangeable.

They're not the same,

but they can serve
broadly similar functions.

Take for instance,
hot dogs and hamburgers.

They're both something
you might have for dinner.

Now in the setting,

suppose the price
of hot dogs goes up.

What happens to the demand
for hamburgers --

a substitute for hot dogs?

People will opt to buy

the relatively less expensive
hamburgers,

instead of the now
more expensive hot dogs.

That means the demand
for hamburgers increases.

Or consider
the opposite occurrence.

What if the price
of hot dogs decreases

instead of going up?

What happens then
to the demand for hamburgers?

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

Hot dogs are now cheaper,

and the demand
for hamburgers decreases

because it now costs less
to buy hot dogs instead.

Technically,
two goods are substitutes

if an increase
in the price of one good

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

Another kind of related good

is what economists
call complements.

Complements are two goods
which are often used together

and make each other more valuable.

Suppose the price
of hamburgers increases.

What happens to the demand
for hamburger buns --

a complement
to hamburgers [proper]?

Well, fewer people
will buy hamburgers,

and so fewer people
will buy hamburger buns.

The demand
for hamburger buns decreases.

And to consider
the opposite situation,

if the price
of hamburger decreases,

demand for hamburger buns
will increase --

that is, more people
buying hamburger

means more people
buying hamburger buns as well

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

Technically, two goods
are complements

if an increase
in the price of one good

leads to a decrease
in the demand for the other,

and vice versa.

So in sum, hamburger producers

want the price
of hot dogs to go up,

the price of hamburger buns
to go down,

and low carb diets to go viral.

Finally, let's look
at expectations.

These can be expectations
of market prices

or of market events.

Consider video game consoles.

If it's November,

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

in a December holiday sale,

they might wait a few weeks
before buying the console.

Demand for that console
decreases today

because it's going
to increase later on.

Or take batteries.

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

If a hurricane hits,

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

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

- [voice] Oh no!

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

and so the expectation

of this future event
of the hurricane

can change the demand
for batteries today.

If people expect
the price of a good

to be higher in the future,

that typically increases
demand today.

Consumers adjust
their current spending

anticipating the future prices

to obtain
the lowest price possible.

And that's it
for our list of shifters.

Now that you understand
what a shift in demand means,

practice recreating
this list of shifters on your own.

What would cause
a higher quantity demanded

at every price?

More people? Wealthier people?

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

Conversely, what would cause
less of a good

to be demanded at every price?

Once you can do that,

you'll be able to identify
demand shifters

without the need
to memorize any list.

- [Narrator] If you're a teacher,

you should check out
our supply and demand unit plan

that incorporates this video.

If you're a learner,

make sure this video sticks

by answering a few quick,
practice questions.

Or if you're ready
for more microeconomics,

click for the next video.

♪ [music] ♪