Suppose this demand curve represents the original and

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Unformatted text preview: ibit 4-3. Look at the curve labeled D1 in Exhibit 4-3. Suppose this demand curve represents the original and current demand for orange juice. Notice that the quantity demanded at a price of $1 is 400 quarts of orange juice. Now suppose that the demand for orange juice increases. For whatever reason, Moving from D1 (original demand curve) to D2 represents a rightward shift in the demand curve. Demand has increased. Moving from D1 to D3 represents a leftward shift in the demand curve. Demand has decreased. people want to buy more orange juice. This increase in demand is shown by the demand curve D1 shifting to the right and becoming D2. Section 2 The Demand Curve Shifts 95 04 (086-109) EMC Chap 04 11/17/05 4:36 PM Page 96 What does it mean for a demand curve to shift to the right? The answer is easy if you again look at Exhibit 4-3, focusing on the horizontal axis and the numbers on it, along the bottom of the graph. What is the quantity demanded on curve D2 at the price of $1? The answer is 600 quarts of orange juice. In other words, an increase in demand (or a shift righward in the demand curve) is the same thing as saying, “Buyers want to buy more of a good at each and every price.” In our example, buyers want to buy more quarts of orange juice at $1. How would we graphically represent a decrease in demand? In Exhibit 4-3, again let’s suppose that D1 is our original and current demand curve. A decrease in demand would then be represented as a shift leftward in the demand curve from D1 to D3. A decrease in demand means that buyers want to buy less of the good at each and every price. Specifically, if we look at the price $1, we see that buyers once wanted to buy 400 quarts of orange juice at $1 a quart, but now they want to buy only 200 quarts at $1 a quart. QUESTION: Is saying that demand has increased for a good the same as saying that buyers are buying more of the good? normal good A good for which the demand rises as income rises and falls as income falls. inferior good A good for which the demand falls as income rises and rises as income falls. neutral good A good for which the demand remains unchanged as income rises or falls. 96 Chapter 4 Demand ANSWER: Yes, but with one important qualification. Buyers are buying more of the good at the same price at which they earlier bought less. For example, suppose that on Monday buyers bought 100 units of a good at $3 per unit. Then on Tuesday they bought 150 units of the same good at $3 per unit. An economist would say that demand for the good increased between Monday and Tuesday because the buyers bought more at the same price. If the good’s price changed, the economist would describe the situation differently. The economist would say that the quantity demanded changed, rather than any change in demand. What Factors Cause Demand Curves to Shift? Demand curves do not shift to the right or left without cause. They shift because of changes in demand, which can result from changes in several factors. These factors include income, buyer preferences, prices of related goods, number of buyers, and future price. Income As their income changes, people may buy more or less of a particular good. You might think that if income goes up, demand will go up, and if income goes down, demand will go down. This relationship is not necessarily the case, however. Much of what happens depends on what goods are involved. If a person’s income and demand change in the same direction (both go up, or both go down), then the good is called a normal good. For example, if Robert’s income rises and he buys more CDs, then CDs are a normal good for Robert. If, however, income and demand go in different directions (one goes up, while the other goes down), the good is called an inferior good. If a person buys the same amount of the good when income changes, the good is called a neutral good. On the average, each month Simon bought and consumed five hot dogs, one steak, and one tube of toothpaste when he was a college student earning $100 a week. Now that he has graduated from college, and is earning $700 a week, he buys two hot dogs, three steaks, and one tube of toothpaste a month. During this time, prices have been stable, meaning no changes in prices. So, for Simon, hot dogs are an inferior good (he buys less as his income rises), steak is a normal good (he buys more as his income rises), and toothpaste is a neutral good (he buys the same amount as his income rises). EXAMPLE: If you’re wondering if a good can be a normal good for one person and an inferior good for another person, the answer is yes. People, not economists, decide whether a good is normal or inferior for them. If Bob’s income goes up and he buys fewer potato chips, then potato chips are an inferior good 04 (086-109) EMC Chap 04 11/17/05 4:36 PM Page 97 for Bob. If Georgia’s income goes up and she buyers more potato chips, then potato chips are a normal good for Georgia. Preferences People’s preferences affect how much of a good they buy. A change in prefere...
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This document was uploaded on 01/16/2014.

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