The Market Forces of Supply and Demand
Shifts in the Demand Curve
Let's get schwifty... I mean, shifty!
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concept
Shifting Right and Shifting Left
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All right, so let's continue here. Um One more note I want to make about when we're shifting, we're either gonna shift to the right or to the left on the graph. Okay. And I like to think of it because a lot of this when we're looking at these shifts, a lot of it is very logical and you just kinda have to think about, is it a good thing that's happening for the product or a bad thing that's happening for the product? Right? When you think of it like that, I think it makes it a little easier to know whether you should shift right or left. So you shift right when it's a good thing, something good happen, we're gonna shift to the right. Okay, so we would have something like this, let me go to blue, we would have our new demand curve shifting to the right, we would shift to the right here. Cool, I'll do that in a different color. Alright and when we have a bad thing happened for the product, something unfavorable for the product, we're gonna shift to the left, so we'll have our new demand curve out here. Cool. Um So we will have from there we go this way this time. Alright and we've shifted to the left. That's the only note I wanted to make here, I'll just get out of the way. So you see that text. Um Yeah, so let's try and think of it as good things and bad things. So good things are gonna shift to the right, bad things to the left. Cool. Let's go ahead and try that in our first example here.
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Consumer Income:Normal Goods and Inferior Goods
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so a factor that could cause demand to shift for a product is the income of the consumer, let's check it out. So as a consumer's income changes, the types of goods that they buy are also gonna change. So let's think about when you're living back at mom's house, right? You come home, have a nice steak dinner, right? Go to bed in a nice queen sized bed, life was good, queen sized queen size bed and now you're in a dorm room. What do you got here? Ramen noodles every night? And I'm assuming this is where I picture you. I'm assuming you're all just like sharing bunk beds with strangers right now with strangers, right? Kind of a downgrade from mom's house. But you'll see that the types of goods here are different, right? Mom's house. We could say the things were a little better. So let's go ahead and define what those are. Um, so we'll say that people buy more what are called normal goods when they have more money and just the opposite people buy more inferior goods when they have less money. So you can kind of follow the logic here. Right? So normal goods could be things like what you had at mom's house or what I've listed here, we've got organic food, new furniture or even going on vacation. We could count as a normal good when we compare it to these inferior goods, like buying a canned soup or buying used furniture off craigslist or a staycation where you just take your days off and just stay home because you've got no money. Cool. So that's the idea here. We're gonna have our normal goods and are inferior goods. And when we think of the consumer income, if that changes, we got to think is our product a normal good or an inferior good? And how is this income change going to affect the demand for the product? I've got an example coming up, Let's try it out.
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example
Consumer Income Shifting Demand
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Alright let's see this example if craft beer is a normal good, what happens to demand when consumer income rises? What if it decreases? So let's handle these one at a time. And I want to make a quick point here about these types of problems. They're gonna generally have to tell you whether a product is a normal good or an inferior good because that's kind of hard to assume that you would be able to guess on the test. So I would expect on the test they're going to be telling you when things are normal goods and inferior goods. Alright. So in this question they do tell us that craft beer is a normal good. And what happens to normal goods when income rises? Right? So when income rises we buy more normal goods. So the income rising causes the demand to shift to the right. It's a good thing, right? Income rising is a good thing for a normal good. That how I like to think about it. So the increased income is going to increase our demand. So let's go ahead and label our axis here. I just want to get in that habit. We got a price on our on our Y. Axis and quantity on our X. Axis, right, alphabetical order left to right. And we're gonna draw our new demand curve. Um Right here let's go ahead and draw it as income increases. Remember normal good demand is gonna increase because of the income increase. So I'm gonna draw a new demand curve out here and we'll call that D. Two. So we've got this one was the one over here and this will be d to our ship To the right, right. And what does this mean? This means that at a certain price. If I were to say our price was right here, p. one. Remember the price isn't changing, it's the people's demand that's changing here. So at the same price we're actually demanding a higher quantity, right? This was where we were originally demanding and now we're demanding somewhere out here at quantity too. Right? So it increased from quantity 12 quantity too at that same price. And that's because income increased and normal good demand increases with income increases. Alright let's look at the opposite, I'm gonna get out of the way here. So if income decreases and beers craft beers a normal good. Right. So we gotta think people buy more normal goods when they have more money they have less money now, so they're gonna buy less normal goods. So we are going to draw a new demand curve here to the left of our original one. And when you draw them, especially when we don't have numbers and stuff, I don't mind going out of the graph like that just to keep it consistent, you know, keep them even. Um So I don't see why there's a problem with that, especially when we got no numbers. So there we go. That is our shift to the left where we had demand curve here, demand one and now we are in demand, too, because income is lower and we see the same thing happening right? We've got the same price. Let's say this is our price right here and notice what happened. We were originally demanding about this much quantity one, but now we're over here demanding this much at the same price quantity, too. So we're demanding much less at the same price. Cool. So that is how income consumer income can affect the demand for a good based on it being a normal good or an inferior good. Cool. Let's move on now.
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Substitute Goods
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So now we can see how the price of another good, in this case a substitute good can affect the demand for our product. So there's gonna be other goods related to our product that can affect our demand. The first one we want to talk about here are substitute goods and we define those by saying that when there's an increase in the price of good X. It's gonna cause the demand of good Y to increase. Alright, this sounds a little little hairy. So let's let's think about it a little bit. So this is the idea that one products prices going up which causes the demand for another product to increase their actually substituting their demand to this new product. Right? The idea is since the price went up on this first product, we're gonna instead by this other thing instead. So I want to make a note um when two things go up together, when we have variables that are increasing together. So in this case the price of good X is going up and the demand of good Y. Is going up as well, we call this relationship directly proportional right? They're going up and up together and vice versa, right? If they went down together, it also holds true, which this is true. So there was a decrease in the price of good X. There would be a decrease in the demand of good Y. Right? All of these things are going to be vice versa, just like that. And one more note. Um is that we are not talking about a change in price here. I know we did say that there was an increase in the price of good X. Right? So you're thinking this could be a change in price but we are analyzing the demand of good Y. We're not worried about the demand of good X in this situation. Okay. So the idea here is that we're looking at how the price change of good X. Is affecting the day demand of good Y. Our focus is on why there hasn't been a price change to Good Y. Right? There was only a price change to Good X. Sounds a little technical. Um But I think once we do a couple examples here it'll make more sense. So let's go ahead and look at some of these examples substitute goods. Alright, so a great example here is coke and Pepsi, right? So if we were to see that the price of coke were to increase, I'll do it like this price of coke increases, right? What's gonna happen to Pepsi? We're gonna see the demand for Pepsi notice. I use d for demand because it's not the quantity demanded here, it's the whole demand curve that's gonna shift the demand for Pepsi is going to increase. And that makes sense, right? Because people are gonna switch their their consumption, they're no longer gonna be buying coke. The they don't really see a difference between the two. They're just gonna buy Pepsi instead. Yeah. I know there's some of you they're like no I only buy coke, whatever, but we're not talking about you, you would probably stay with, but there's gonna be other people that are switching their demand, right? Um So we are gonna see the demand for Pepsi going up there. Um Same thing here with margarine and butter. Right. Same example. Let's go ahead and say, well, in this case, let's say that the price of margarine, I'm gonna just put mar price of margarine goes down in this situation. Okay, um What's gonna happen to the market for butter? Well, now people are gonna buy margarine instead of butter, right? That's the idea. So the demand for butter and let me put butter down here. And over here. I want to put Pepsi as well. I forgot to write that in. That makes sense. Yeah. So the demand for butter is going to decrease. Cool. I've got one more example here, apples and oranges, Right? So yes, we are able to compare apples and oranges in a sense here. Um I'll do a similar example. So let's say the price of apples was to go up. What's gonna happen to the demand for oranges? Well, assuming that people will substitute an apple for an orange in their fruit consumption. We're going to say that the demand for oranges is gonna go up because people will buy these oranges instead of the higher priced apples. Cool, so let's go ahead and try one of these examples on the graph. Um So yeah, let's do that in the next video.
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example
Substitute Goods
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Alright let's try this example here, assume that regular toasters and defibrillator toasters are substitute goods. If the price of regular toasters rises. A. What happens to the demand for defibrillator toasters and B. What happens to the demand for regular toasters? Look at that thing, that thing is awesome. Right? Alright so let's see what happens here. So what we do know is that the price of toasters? I'll put regular price of regular toasters is going up and they're asking us what's gonna happen to the demand for our defibrillator toasters? I'll put D. E. F. For the defibrillator, right? What's gonna happen for the defibrillator toaster? So as we know with substitute goods when the price rises of a substitute good the demand for this good is gonna increase. Right? So this is a I like to think of it as a good thing happening for defibrillator toasters, right? The idea is that the price going up for regular toasters is gonna cause people to buy more defibrillator toasters instead. Right? So that's a good thing happening for defibrillator toasters and we know good things shift us to the right. So let's go ahead. And so the demand is gonna go up here, right? So let's go ahead and put this on the graph if this was our original demand for uh defibrillator toasters right here at the one and let's go ahead and label our axis too. I love getting into this habit. So we've got our price and quantity down here, right, alphabetical order left to right? Um So yeah our demand for defibrillator toasters is gonna increase here. So what are we gonna do? We're gonna shift to the right and we'll draw a new line. I like to draw a nice and parallel here just like that and that's going to be D. Two right there. That is our new demand. We've shifted to the right and notice we're not really doing much math here. It's just getting used to this right? It's shifted to the right. Okay cool. So how about part B. I'm gonna get out of the way here. Um What happens to the demand for regular toasters? Right. So what has happened we know that there was a price increase right? We had a price increase for regular toasters. So what's gonna happen in the market for regular toasters? If one of you went ahead and drew this demand curve right here to the left, I want to go ahead and tell you that you're wrong and it's a good thing you're here because you will fail the exam if you do that. The idea here is in the market for regular toasters we're seeing a price change in regular toasters, right? This is the one thing that keeps us on the same demand curve. So if we were to say we were here originally let's say that was the original price and quantity right? So let's live our axes p up here. Q. Down here and we're gonna have this original price P. One and original quantity Q. One. Well let's say in this situation the price increased. Right? So the price increased here to P. Two and P. Two. What's going to happen notice we're still on the same graph? The graph did not we did not draw excuse me on the same line. Right? We did not draw a new line. So because the price increased for regular toasters the quantity demanded of regular toasters is going to decrease. Notice. In this case I use the Q. D. Because we're talking about the quantity demanded not the whole demand line shifting. Right? So I hope that makes sense to you right? That's where we want. Be careful when will the price change affect our product? And that's when we stay on the same line. Cool. So the price change originally it was affecting the demand for defibrillators. And that's why we drew a new line. Alright let's go ahead and move on.
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concept
Complementary Goods
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Now let's discuss how another related good, a complimentary good can affect the demand for a product. So just like with substitute goods, complementary goods also can affect our demand here. So, complementary goods. Um There are things that are usually bought together, things that you buy together. All right, we'll do some examples in a second. But the idea here is that when the price of good X goes up, then the demand of good way, why is going to decrease? Alright. And this is because they usually buy the things together. So if the price of one of the things goes up there and be like, hey, maybe I won't buy these things, you see, and I'll buy something else. Cool. So just like where we had directly proportional, now we're going to define inversely proportional. So these are variables that move inversely to each other. So when one goes up, the other goes down and vice versa. When one goes down, the other goes up. So you'll see here with complimentary goods, that's exactly what's happening. The price of one good is going up and the demand of the other good is going down. They have an inverse relationship and inversely proportional relationship. Sometimes you just say inverse relationship and it gets the same point again, just like with substitute goods, we're not talking about a change in price, right? This is the change in price of another product of a different product and it's affecting the demand of the product. We are analyzing again, in this situation, we're analyzing the demand of good Y. And the price changes happening in good X. There's nope price change happening in good Y. Cool. Let's do some of these examples, what are some examples of complementary products? So first one really common one that you see is peanut butter and jelly, right? These are things that are generally bought together. So what if the price of peanut butter, what if the price of peanut butter were to go up? Well then the demand for jelly is gonna go down, Right? And that makes sense, right? Because they buy them together. Well, peanut butter is more expensive, maybe I just won't buy these things. So then the demand for the jelly goes down because of that price rise and peanut butter about DVD Players and Dvds, these are compliments as well. If the price of a player say goes down in this situation of the player, what's gonna happen to the demand for Dvds? Well, the demand for Dvds is gonna go up in this case, right? Same logic applies there because you usually bought together, they're going to um more likely buy Dvds now that the price of the players is cheaper. Last one here, let me get out of the way, we've got cars and gasoline, same kind of logic. So let's say the price of a car goes up, then the demand for gasoline is going to go down. Cool. So you can see that a lot of times and you're gonna see this in the upcoming lessons, there is a kind of a logical approach you can take here. You can kind of just use your intuition to think about how these products are gonna affect each other. Cool. Let's go ahead and do an example.
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example
Complementary Goods
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All right. So let's do this example. We've got our defibrillator toasters again. And now let's assume that they are complementary goods with wonder bread defibrillator toasters and wonder bread. Um So what happens if the price of defibrillator toasters falls? A. What will happen to the demand for wonder bread? And B. What happens to the demand for defibrillator toasters? Cool. So let's start with wonder bread here and we are seeing a price decrease, right? We're seeing price decrease in defibrillator toasters. So I'm gonna put price decrease in D. E. F. And we want to know what happens to wonder bread in this situation. So what's gonna happen to the demand for wonder bread? Right. Um I'll put WB. So these are complementary goods. There are things that are usually bought together. So since the price of the toaster went down, people are gonna buy more bread, right? That's the idea they're complementary goods. So since the price of the toaster went down, we are going to demand more wonder bread. Cool. So let's go ahead and put this on the graph. So remember this is a good thing happening for wonder bread right? The complementary good went down in price. So it's a good thing for wonder bread. Let's go ahead and draw the good thing to the right. Yes. Well first I always like labeling our graph price and quantity. And let's go ahead and draw our new demand curve to the right, yep. So it has shifted to the right and that is our answer here for wonder bread. Our demand shifted to the right. I'm gonna label these D. One for the original and D. Two for our new demand curve. All right, let me get out of the way here and let's do the market for defibrillators toasters. So the problem told us that we had a price decrease in defibrillator toasters. And again, how do you think this is gonna affect the market for defibrillator toasters? So hopefully you caught this trick from the last video already. And what we're gonna see is that we're not going to draw a new demand line because the price is what's changing in the market. So we're actually just gonna see the quantity demanded going up for defibrillator toasters. All right. So we're not gonna draw a new line because it is price that is changing here of our product. So if we were here originally and this is our price axis quantity access. Right? And now we had a decrease in the price. So our price went from here. And now it's say here notice what has happened to our quantity, our quantity demanded has increased from quantity one to quantity too. So you do not draw a new line there because it was a price change in that market. Alright guys hope this made sense. Oh actually sorry. We've got one more note here at the bottom. So you see what if the goods are neither substitutes nor compliments. So now we're talking about two goods that are not substitutes and they're not compliments in that case the goods are just unrelated, so a price change in one good is not going to affect the demand of the other at all. These are the only types of good of of related goods that we're gonna see substitute and complement. Okay. So if they're if they're neither of these, the price changes aren't going to affect each other because they're not related at all. Alright, cool guys. Alright, so let's move on.
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concept
Consumer Preferences
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Alright, so, another factor that can affect the demand for a product is consumer preferences for that product. So, consumer preferences change all the time. It's kind of an intangible thing. Um But when you see it in a problem, it's gonna have to be told to you that preferences are changing. So the idea is if the preferences benefit the good, So if it's some kind of change in consumer preferences, it's kind it's gonna be a little vague until you see an example, but if it benefits the good in some way, then it's going to increase our demand, right? So it's going to shift to the right? If it's some sort of beneficial preference change, obviously the opposite. If if it's not a beneficial change, if it's something where there preferring something else, instead, then our demand will shift to the left. All right, So, let's go ahead and see some examples. So, the idea that fitness rises in popularity among the consumers, this can affect the price of fitness related products. Right? So let's say um fit preference. And I'm gonna put this is this is not like some real notation. I'm just making this up, preference for fitness goes up. Then the demand for fitness products. Fitness products is gonna go up, right? People are gonna want fitness products more because they prefer fitness. See the same thing happening in like, the fashion industry, right? The demand for different fashions is gonna go up and down based on consumer preferences, and cellular phones that also saw a big demand shift where people don't even have house phones anymore, right? A lot of people don't even have a house phone, they just have their cell phone, and that's the only way to contact them. So there's been a preference change towards cellular devices. Cool, So let's go ahead and do an example and see this in action.
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example
Consumer Preferences
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All right. Let's look at this problem. As a fitness craze sweeps the nation upside down yoga class membership has skyrocketed. What happens to the demand for protein shakes? All right. So, there's a lot of information there, but we're just talking about protein shakes in the end. Right. Look at this hilarious picture. Honestly, that does look kind of fun. I'm sure I would try it. I probably couldn't hang like that. But, you know, I'd give it a chance. Alright, so, let's go ahead and see what happens to the demand for protein shakes. All right. So, the idea is that consumer preferences have moved towards fitness. So, you can imagine that the demand for protein shakes is going to increase as well. Right? So, as the as people's preferences for fitness goes up, the demand for some sort of fitness related products, like a protein shake is also gonna go up. So, this is a good thing for the protein shake market, right? So, what we're gonna see is a good thing shifts us to the right. So, let's go ahead and just to beat it in. Let's draw in our axes, P. Q. Right left to right, alphabetically. And let's draw in our new demand curve. So, if this was D one right here, D. Two would be to the right because of the preference shift towards fitness products. We shifted to the right, and D. Two is right here, that is our shift to the right because of the consumer preference change. Cool. Alright, let's move on
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concept
Consumer Expectations
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now let's see how consumer expectations about future prices can affect the demand for a good today. So, um if consumers are expecting prices to increase in the future, then you can expect them to want to buy the thing today at a cheaper price. Right? So the demand for the good today is going to increase. You stick to read here, it's gonna increase. Right? So here we have a directly proportional relationship, right? They're both going up together, the future, expected prices going up and the demand is going up right? And notice again, this one's a little tricky because we are talking about prices of our product, but it is not a change in the price, right? Because the price didn't change, the price didn't change. It's only the expectations about the price that change. So again, we've got another little technicality here, but it's not the price changing. We're just expecting a different price in the future. Cool. So here's some examples of things that could change customer expectations. Consumer expectations. Um So the first one here being inclement weather. So if there's gonna be some sort of, they, they hear of some sort of, you know, shortage of a product because the hurricane or because there's been a dry spell or whatever. Um you could expect them to kind of panic and want to buy more of it now before there's some sort of shortage in the future. Right? So that would increase the demand now about future income. So a lot of people count their eggs before they hatch right there, Like, hey, I'm getting a raise next year. so maybe I could spend a little more now. Yeah Not the best logic but it still holds true in practice. And another one here just expected price changes in general. How about the release I like this one. How about the release of a new iPhone? Right so let's say you were about to go by like the latest iPhone 12 or whatever it is and um you just heard that Apple is going to be putting out iPhone 13. Well then if you really want an iPhone 12, you'll probably wait till iPhone 13 comes up because you're expecting the price of iPhone 12 to go down. So you'll wait and not demand an iPhone 12 today and get it once the price decreases. Alright so let's go ahead and try an example here.
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example
Consumer Expectations
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All right so let's try this example here as a hurricane approaches, brazil, Fear of a shortage of coffee spreads. What happens to the demand for coffee beans? So hurricane I don't even know if brazil gets hurricanes but you know whatever the idea here is that consumers are going to be expecting the price to increase right there. Fear of a shortage of coffee. They're expecting price the future price of coffee to be higher. Right? So so we're gonna say um expected put E. X. Price up. That means the demand now is gonna go up right? People are gonna want to buy it now because they're expecting it to be more expensive in the future. So this is a good thing for our demand right? Because they want to buy more of it now. So we are going to shift it to the right. Cool. So our demand curve moved from D. One here to D. Two. Price access quantity axis. Cool. So that's pretty simple. It's pretty straightforward one. Um Just their expected future price increase so they're gonna want to buy more of it now. Alright great. Let's move on.
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concept
Number of Consumers
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Now let's see how the number of consumers in a market can affect demand. So this one's pretty straightforward. If the amount of consumers in a market increases, then the demand for a good is going to increase as well. Right? So there's just more people that want to buy it, then the demand is going to increase, right? There's just more people buying it. So here we see a directly proportional relationship as well, right? We've got the amount of customers increasing and the demand also increasing. So here's some good examples of how the number of consumers could change. We could have immigration, right? If immigration is happening to our country, we're going to see a rise in our population rise in the number of consumers, same with birth rate, right? If there's an increased birth rate, there's gonna be more consumers or decreased birth rate, less consumers. Right? And the last one here pretty interesting is the effects of advertising. So advertising can go ahead and take someone who was not a consumer of your product, right? They had no demand for your product, you advertise to them and now they do demand your product. So you're actually bringing, bringing in consumers to your product that before didn't want to buy it. So advertising is another thing that could increase the number of consumers in a market. Alright, let's go ahead and do an example
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example
Number of Consumers
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Alright, so let's check out this example after clutch Topia introduced its free pizza for everybody. Policy immigration to the awesome country skyrocketed, doubling its population. What happens to the demand for bar soap and clutch Topia? So it seems kind of random, but the idea here is there's more consumers, right? The population of clutch Topia doubled. So you can imagine that people are gonna be buying more bar soap just because there's more people there. So you're seeing the number of consumers increasing, Therefore the demand is increasing. So there's more consumers, the demand is going to increase. Alright, so this was D1 right here, our price and quantity axes in alphabetical order. And let's go ahead and shift this demand curve. Right? So which way are we gonna shift? This was a good thing for bar soap, right? The number of consumers increased for bar soap. So it's a good thing for bar soap. Let's go ahead and draw this graph to the right. So we have shifted to the right here to demand too, and you can see that we've moved to the right. Cool, pretty easy. Right? This one is easy, it's straightforward. Number of consumers goes up. The demand is gonna go up. Alright, cool. Let's move on
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concept
Demand Shift Summary
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Alright, so last I included this summary sheet that includes all the shifts in demand that we've covered so far as well as information about changes in price. So first I've listed all of the ones that are directly proportional. That means that the determinant is going to go up as well as the demand is going to go up. And it makes this neat little akron. I'm here in spec I know some of you do well with acronyms and stuff like that. So I included it in here, although I would really think that it's better to focus on the logic and the intuition when it comes to deciding which way things are going to shift. Um But nonetheless, this could be helpful for you as well. So I included it in here. So here we've got all our directly proportional shifts income and normal goods, right? So if consumer income rises, demand for normal good rises uh substitute products. If the price of a substitute goes up, the demand for our good is gonna go up, preferences for a good. So if the preferences if consumers prefer this good, for some reason, the demand for that good is going to increase consumer expectations. So if the expected future price in the consumer's mind is gonna be higher, then they're gonna demand the good now more. So you're gonna see an increase in current demand there. And lastly, the number of consumers, so if you see the number of consumers in the market go up, you're also gonna see the demand for that product go up next. Let's cover these inversely proportional ones We've got um This one. Unfortunately, there's only two, so I couldn't really make an acronym here. Um But that's why there's only two. It should be easy to remember. So we've got income with inferior goods. So when consumer income rises, demand for inferior goods is gonna fall, right? And compliments. When the price of a compliment goes up, a complementary product, then the demand for our good is gonna fall. And last I wanted to include this note about changes in price. Remember when we have a change in price, it's only going to change the quantity demanded, right? We're not going to draw a new demand curve. I know you see two curves there fore shadowing a little bit. The other one's gonna be the supply curve, and we're gonna get into that in a minute. But what you see here is that we've moved on the demand curve, say, from this point here in the middle, we've moved up to that other point. Okay, So we've only moved along the line and not drawn an entirely new demand curve. Alright, cool. So, I hope this sheet is really valuable to you and I think you should use it, especially while you're still getting comfortable with the shifts while you're doing practice problems. Try and use this sheet to help you guide to the correct answers. Cool. Alright. One more thing. You see all this empty space here on the right side of the page. I wonder what's gonna fill that up later? We'll have to see. All right, let's go.
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Problem
ProblemWhat happens in the market for blenders if consumers decide that juicing their vegetables is better than blending their vegetables?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
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Problem
ProblemWhat happens in the market for beef jerky if customers expect a price increase in the future?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right
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Problem
ProblemIf cheese in a can is an inferior good, what happens to its market when consumer income increases?
A
Demand shifts to the left
B
Demand shifts to the right
C
Supply shifts to the left
D
Supply shifts to the right