What Shifts the Demand Curve? — Transcript

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1. 0:01♪ [music] ♪
2. 0:12- [Tyler] In previous videos,
3. 0:13we've covered the basics of the demand curve.
4. 0:16Now let's discuss what happens when the demand curve shifts,
5. 0:20due to increases or decreases in market demand.
6. 0:23First, let's look at an increase in demand.
7. 0:26An increase in demand
8. 0:28means that the demand curve shifts up and to the right.
9. 0:32Take the market for houseplants, for instance.
10. 0:35On the old demand curve at $20,
11. 0:38the quantity demanded was five plants,
12. 0:41but on the new demand curve at, again, $20,
13. 0:44the quantity demanded is eight plants.
14. 0:48At $16, we go from six plants to nine plants.
15. 0:53At $12, we go from seven to ten plants, and so on.
16. 0:57An increase in demand
17. 0:59is a greater quantity demanded at every price.
18. 1:03We can also read an increase in demand
19. 1:05using what is called the vertical method.
20. 1:07What that means is that for every quantity,
21. 1:10there's a greater willingness to pay for that quantity.
22. 1:13For instance, for the fifth unit,
23. 1:15people had been willing to pay $20 for that unit.
24. 1:19Now with the new demand curve,
25. 1:20people are willing to pay $32 for that unit.
26. 1:25In summary, an increase in demand
27. 1:27means an increase in the quantity demanded
28. 1:30at every market price.
29. 1:32Or equivalently, it means an increase
30. 1:34in the maximum willingness to pay for a given quantity.
31. 1:39A decrease in demand --
32. 1:40well, that's just the opposite of an increase in demand.
33. 1:43It's a shift down and to the left.
34. 1:46There's a decrease in quantity demanded at every price.
35. 1:50Now at $20, people only want to buy two houseplants.
36. 1:56At $16, we go from six to three houseplants, and so on.
37. 2:01Similarly, this means a decrease
38. 2:03in the willingness to pay for the same quantity.
39. 2:06For the fifth unit,
40. 2:08people were willing to pay $20 for that unit,
41. 2:11but now they're only going to fork over $8
42. 2:13for that houseplant.
43. 2:16So what can cause a shift in demand?
44. 2:20What would make consumers buy more or less of a good
45. 2:22at every price?
46. 2:24Take a moment to jot down some guesses.
47. 2:29We'll go through these with a few examples.
48. 2:32But the real goal is not to memorize this list
49. 2:35but rather to understand
50. 2:36what an increase or decrease in demand means
51. 2:39so that you can recreate this list on your own.
52. 2:43Let's now go through five factors
53. 2:45that can increase or decrease market demand,
54. 2:48namely income, population, tastes,
55. 2:51the price of related goods,
56. 2:53and finally, expectations.
57. 2:56Let's start with changes in income.
58. 2:59The effect of a change in income on demand
59. 3:02depends on the nature of the good in question.
60. 3:05For most goods, as your income goes up,
61. 3:07you demand more of the good.
62. 3:09Think, for instance, fine dining.
63. 3:12You need to be able to afford it, right?
64. 3:14The demand curve then shifts up and to the right.
65. 3:18These goods are called normal goods
66. 3:20because the demand for them goes up when incomes go up,
67. 3:23and indeed most goods are normal goods --
68. 3:26that's why we call them normal.
69. 3:28And these same goods --
70. 3:30the demand for them goes down when incomes go down.
71. 3:34There are also goods, however,
72. 3:36for which, when your income goes up,
73. 3:38your demand for them actually goes down.
74. 3:41These are exceptions.
75. 3:42We call them inferior goods.
76. 3:45So an example of such an inferior good
77. 3:47might be instant ramen --
78. 3:49it's very cheap.
79. 3:52As you make more money, you might buy, say,
80. 3:54more caviar, more steak, and less instant ramen.
81. 3:58- [voice] No, thanks!
82. 3:59- [Tyler] Thus, the demand curve for instant ramen
83. 4:02will shift down into the left as your income increases.
84. 4:06Now let's move on to changes in population.
85. 4:10If the population of an economy changes,
86. 4:13the number of potential buyers of a good changes also.
87. 4:18What would happen to the demand for hearing aids
88. 4:21if the elderly population in your country increased?
89. 4:24Well, very likely, demand for hearing aids would increase.
90. 4:28At any price for those hearing aids,
91. 4:30there would be a higher quantity demanded.
92. 4:38Can you think of a good that would decrease in demand
93. 4:41if the birth rates in your country decreased?
94. 4:45Now, we'll move on to changes in tastes.
95. 4:48Tastes are subjective, and they're changing all the time.
96. 4:51New information, fashions, and fads all can impact tastes.
97. 4:56To give an example,
98. 4:57what happens to the demand for hamburgers
99. 5:00if low-carb diets,
100. 5:01like the keto diet or the caveman diet
101. 5:04become more popular?
102. 5:06Well, people would want to go out and buy and eat more hamburgers,
103. 5:10and so the demand for hamburgers would increase.
104. 5:14Alternatively, what if a controversy surfaced
105. 5:17that questioned the ethics of hamburger production?
106. 5:21People might then feel bad about buying hamburgers,
107. 5:24and then they would buy fewer hamburgers
108. 5:26or maybe stop buying them altogether.
109. 5:28The demand for hamburgers then would go down.
110. 5:33Next, let's consider how the price of a related good
111. 5:37can affect demand,
112. 5:38starting with substitute goods.
113. 5:41Now substitutes are two goods that are roughly interchangeable.
114. 5:45They're not the same,
115. 5:46but they can serve broadly similar functions.
116. 5:49Take, for instance, hot dogs and hamburgers --
117. 5:51they're both something you might have for dinner.
118. 5:54Now in the setting,
119. 5:55suppose the price of hot dogs goes up.
120. 5:58What happens to the demand for hamburgers --
121. 6:00a substitute for hot dogs?
122. 6:03People will opt to buy
123. 6:04the relatively less expensive hamburgers,
124. 6:07instead of the now more expensive hot dogs.
125. 6:13That means the demand for hamburgers increases.
126. 6:17Or consider the opposite occurrence.
127. 6:19What if the price of hot dogs decreases,
128. 6:22instead of going up?
129. 6:23What happens then to the demand for hamburgers?
130. 6:26Well, that's just the opposite of the first scenario.
131. 6:29Hot dogs are now cheaper,
132. 6:31and the demand for hamburgers decreases
133. 6:33because it now costs less to buy hot dogs instead.
134. 6:38Technically, two goods are substitutes
135. 6:40if an increase in the price of one good
136. 6:42leads to an increase in demand for the other good and vice versa.
137. 6:48Another kind of related good
138. 6:49is what economists call complements.
139. 6:52Complements are two goods which are often used together
140. 6:55and make each other more valuable.
141. 6:58Suppose the price of hamburgers increases.
142. 7:01What happens to the demand for hamburger buns --
143. 7:04a complement to hamburgers proper?
144. 7:07Well, fewer people will buy hamburgers,
145. 7:11and so fewer people will buy hamburger buns.
146. 7:14The demand for hamburger buns decreases.
147. 7:18And to consider the opposite situation,
148. 7:21if the price of hamburger decreases,
149. 7:23demand for hamburger buns will increase --
150. 7:27that is, more people buying hamburger
151. 7:29means more people buying hamburger buns as well
152. 7:32because again, you're putting the hamburger and the bun together.
153. 7:35Technically, two goods are complements
154. 7:38if an increase in the price of one good
155. 7:40leads to a decrease in the demand for the other,
156. 7:43and vice versa.
157. 7:45So in sum, hamburger producers
158. 7:47want the price of hot dogs to go up,
159. 7:49the price of hamburger buns to go down,
160. 7:52and low-carb diets to go viral.
161. 7:54Finally, let's look at expectations.
162. 7:57These can be expectations of market prices
163. 8:00or of market events.
164. 8:02Consider video game consoles.
165. 8:04If it's November,
166. 8:05and people expect the price of a gaming console to go down
167. 8:09in a December holiday sale,
168. 8:11they might wait a few weeks before buying the console.
169. 8:15Demand for that console decreases today
170. 8:18because it's going to increase later on.
171. 8:21Or take batteries.
172. 8:22Suppose you hear there's going to be a big hurricane in your area.
173. 8:26If a hurricane hits,
174. 8:28you might expect the price of batteries is going to go up,
175. 8:31or maybe it will be really hard to get any batteries at all.
176. 8:34- [voice] Oh no!
177. 8:35- [Tyler] That means a higher demand for batteries today,
178. 8:38and so the expectation
179. 8:39of this future event of the hurricane
180. 8:42can change the demand for batteries today.
181. 8:45If people expect the price of a good
182. 8:47to be higher in the future --
183. 8:49that typically increases demand today.
184. 8:52Consumers adjust their current spending,
185. 8:54anticipating the future prices,
186. 8:57to obtain the lowest price possible.
187. 8:59And that's it for our list of shifters.
188. 9:02Now that you understand what a shift in demand means,
189. 9:05practice recreating this list of shifters on your own.
190. 9:09What would cause a higher quantity demanded
191. 9:12at every price?
192. 9:13More people? Wealthier people?
193. 9:15It's the hotter in-item and so on.
194. 9:18Conversely, what would cause less of a good
195. 9:21to be demanded at every price?
196. 9:24Once you can do that,
197. 9:25you'll be able to identify demand shifters
198. 9:28without the need to memorize any list.
199. 9:33- [Narrator] If you're a teacher,
200. 9:34you should check out our supply and demand unit plan
201. 9:36that incorporates this video.
202. 9:38If you're a learner,
203. 9:39make sure this video sticks
204. 9:41by answering a few quick practice questions.
205. 9:43Or, if you're ready for more microeconomics,
206. 9:45click for the next video.
207. 9:48♪ [music] ♪