Demand Shifters - Foothill College



Demand Shifters

(Price is not a demand shifter. Like a shift in Supply, price changes will not shift or change demand, they will cause movement along the D-curve aka change in Quantity demanded or change in Qd)

1. Buyers’ income (Level of GDP per capita aka PCI)

A change in Distribution of income can shift Demand. While level of PCI would be assumed unchanged, if you were given:

“Income becomes more unequal” and good is: private helicopters

D increases.

But if you were given:

“Income becomes more unequal” and good is: Bargain retail (all shopping at Wal-Mart, Ross, K-Mart)

D Decreases.

2. Buyers’ taste and preferences

Any medical advice to eat or consume a certain product ( or not do so), advertising, fads/trends, religious or cultural changes that impact the consumption of a good all fall under “tastes”

3. Price of complements and substitutes

4. Buyers’ expectations of future market conditions (especially the good’s future price) but could be generally there outlook on the economy, jobs, income, personal economic stability captured by a survey called consumer confidence (cc)

5. Number of buyers in the market (aka size of the market)

For # of buyers, it could be described as a population (pop) increase (or decrease). If US population increases, then you have to assume D has gone up for all goods, including, say, software.

Also it doesn’t have to be the level of pop – it could be the makeup of pop. If you are told that a demographic has changed (you then have to assume level of pop – as anything else in the economy – is unchanged).

Example: “population is aging” and the good is health care

(increase in D)

“population is aging” and the good is video games

(decrease in D)

Supply Shifters

(Price is not a Supply shifter. Like a shift in Demand, price changes will not shift or change Supply, they will cause movement along the S-curve aka change in Quantity Supplyied or change in Qs)

(1) Level of Productivity, Technology, or Human Capital used in production (more broadly, the method of production)

(2) Input prices (raw or intermediate materials that are needed to make output are called “inputs”). This also refers to the cost associated with any of the four “factors of production”. Also called resource prices. Usually would be specific: A change in

Price of Oil

Employees Wages

Cost of buying or running a machine or Factory (Physical Capital)

(3) Prices of other goods (specifically, the prices of other goods that the firm could produce instead).

(4) Expectations about future prices for the good

(5) The firm’s objective (e.g. profit maximizing or something else?)

(6) Number of firms in the industry; also might best be described as any of the following - # of Suppliers/Producers/Resources

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