# Demand Shifters

### EDUCATOR'S VERSION

Posted April 6, 2004

Standard: 8

Author: Council for Economic Education

Posted: April 6, 2004

Updated: January 4, 2007

### DESCRIPTION

In this lesson students learn about demand and factors that cause demand for a good or service to change. They also learn to recognize factors that influence their behavior as a consumers.

### STUDENTS WILL

• Define quantity demanded.
• Define demand.
• Give examples of changes in demand caused by changes in consumer tastes and preferences, consumer income, number of consumers, and prices of related goods and services.
• Identify an increase or decrease in a graph.
• Predict an increase or decrease in demand when given pertinent information.
• Explain what causes a shift in demand.

### INTRODUCTION

Adolescents as a group play an important part in total consumer spending. For this reason, it is important that they learn to analyze their spending habits and recognize factors that influence their behavior. This lesson reviews the law of demand, demand, and quantity demanded and introduces the non-price determinants of demand. These are the factors held constant when establishing the demand for a product. They include: number of consumers in the market, consumer tastes and preferences, consumer income, and prices of related goods (complements and substitutes).

### RESOURCES

• True/False Quiz: For closure, instruct students to complete the true/false quiz.
True/False quiz
• Multiple Choice Evaluation: This evaluation is used to assess students understanding of the concepts introduced in this lesson.
Multiple choice evaluation

### PROCESS

Part 1

Review the concept of demand. Ask students: What does quantity demanded mean?
[The amount of a good or service people are willing and able to buy at a particular price, other things being equal.]

Instruct students to answer the multiple choice questions using the demand schedule for Bubble Soda.
Remind students that the relationship between price and quantity demanded is inverse and is called the Law of Demand. Demand is the relationship between various prices and the quantities consumers are willing and able to buy during some time period, holding all other things constant. Demand is the entire schedule, not a single price and quantity demanded from the schedule. Demand is the entire schedule.

Tell students that the demand schedule can also be displayed as a graph. Direct students to answer the questions using the demand graph for Bubble Soda.

Review with students their answers to the following questions:

1. What does the demand curve look like?[The demand curve is downward sloping.]

2. Why is the curve downward sloping? [The curve is downward sloping because as the price does down the quantity demanded goes up and as price goes up the quantity demanded goes down.]

3. What is the one factor that resulted in consumer tastes for Bubble Soda to change?
[The one factor that resulted in consumer tastes for Bubble Soda to change is price.]

4. Why are consumers willing and able to buy more of a product at a lower price?
[With a given amount of income, a lower price means consumers can afford to buy more of a product. Also, when the price of a product falls, consumers will substitute this less expensive product for more expensive similar products that are similar.]

Part 2

Assign the students to study the demand graph for skateboards and answer the questions. Review student answers.

1. What quantity of skateboards is demanded at point A? [80]
At point B? [100]
2. What quantity of skateboard is demanded at point C? [60]
At point D? [80]
3. What quantity of skateboards is demanded at point E? [40]
At point F? [60]

Point out to students that movement along demand curve D1 from point A to Point C results in a decrease in quantity demanded. Movement along demand curve D2 from point B to point D results in a decrease in quantity demanded.
4. Ask students: What is the difference between demand curve D1 and D2?
[The quantity demanded at each and every price on demand curve D2 is greater by 20 skateboards at each and every price.]

Part 3

Review with students the non-price determinants that cause a change in the quantity demanded at each and every price, in other words, a change in demand.

Non price determinants include:

• Change in the number of consumers in the market for a product
[If the number of consumers in the market for a product increases, the demand for the product will increase. If a new high school is built in the same block as a fast food restaurant, the demand for the fast-food restaurant's products will increase. When the school closes for summer vacation, the demand for the fast-food restaurant's products will decrease.]
• Change in consumer tastes and preferences for a product
[If consumer tastes and preferences for a product change, the demand for the product will change. If fashion magazines are showing short skirts, the demand for short skirts will increase. If fashion magazines show few pictures of short skirts, the demand for these skirts will decrease.]
• Change in consumer income
[If consumer income increases, demand for most goods and services will increase. The reverse is also true. If consumer income decreases, demand for most goods and services will decrease. For example, if workers at a manufacturing facility sign a new contract that provides a 5% raise, these workers will have more income and their demand for goods and services will increase. If Social Security taxes increase for employees, consumers will have less take-home pay, and as a result, their demand for goods and services will decrease.]
• Change in the price of related goods—complements
[A change in the price of one good can change the demand for another good. One type of related goods is complements-goods that are purchased together. A decrease in the price of strawberries will cause an increase in the demand for whipped cream. An increase in the price of hamburger will cause a decrease in the demand for hamburger buns.]
• Change in the price of related goods—substitutes
[A change in the price of one good can change the demand for another good. One type of related goods is substitutes-goods that are bought in place of other goods. If the price of movie tickets increases, the demand for video rentals may increase. If the price of Hamburger Heaven's hamburgers decreases, the demand for Big Burger's hamburgers may decrease.]

Display graph for Bubble Soda with demand curve labeled demand.

Assign the students to use the Bubble Soda example and determine how demand would change and why for each of the examples below. Review students answers.

• If Bubble Soda was endorsed by a famous celebrity, and its popularity increased, what do you think would happen to the quantity demanded at \$1.00? \$.75? \$.50? \$.25?
Would it increase or decrease?

[Increase. The quantity demanded at each and every price would increase. In other words, demand would increase.]
• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in consumer taste and preference. Advertising resulted in a change in consumer taste and preference for Bubble Soda. Due to advertising, consumers wanted more Bubble Soda at each and every price.]

• If students receive an increase in their allowance, what do you think would happen to the quantity demanded of Bubble Soda at \$1.00? \$.75? \$.50? \$.25? Would it increase or decrease?

[Increase The quantity demanded at each and every price would increase. In other words, demand would increase.]

• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in consumer income. An increase in allowance results in a change in consumer income. An increase in income results in increase in the quantity demanded at each and every price.]

• If Bubble Soda was introduced in another country and became popular, what do you think would happen to the quantity demanded of Bubble Soda at \$1.00? \$.75? \$.50? \$.25? Would it increase or decrease?

[Increase. The quantity demanded at each and every price would increase. In other words, demand would increase.]

• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in the number of consumers. Demand for Bubble Soda increased because more consumers are in the market for Bubble Soda.]

• If the drinking of Bubble Soda was linked to tooth decay and its popularity decreased, what do you think would happen to the quantity demanded of Bubble Soda at \$1.00? \$.75? \$.50? \$.25? Would it increase or decrease?

[Decrease. The quantity demanded at each and every price would decrease. In other words, demand would decrease.]

• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in consumer taste and preferences. The report that Bubble Soda causes tooth decay changes consumer tastes and preferences.]

• If the price of Bugle Chips (a complement to Bubble Soda) decreases, what will happen in the market for Bubble Soda? Would it increase or decrease?
[Increase. Demand for Bubble Soda will increase because the price of a complementary good decreased.]
• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in the price of a complementary good. Bubble Soda and Bugle Chips are complementary goods. When the price of Bugle Chips decreases, the demand for Bubble Soda increases.]

• If the price of Too Cool Cola (a substitute for Bubble Soda) decreases, what will happen in the market for Bubble Soda? Would it increase or decrease?

[Decrease. Demand for Bubble Soda will decrease. In the market for Bubble Soda consumers want less Bubble Soda at each and every price.]

• Which of the following demand shifters caused this change in demand?
• Change in the number of consumers
• Change in consumer tastes and preferences
• Change in consumer income
• Change in the price of a substitute good
• Change in the price of a complementary good

[Change in the price of a substitute good. Demand for Bubble Soda will decrease because the price of a substitute good decreased. In the market for Bubble Soda consumers want less Bubble Soda at each and every price.]

### CONCLUSION

Remind students that in this lesson they reviewed the law of demand; they learned how price changes affect the amount of a good or service consumers are willing and able to buy.

They also learned about the non-price determinants of demand and how non-price determinants result in a change in demand. Review that a change in demand means that the amount consumers are willing and able to buy changes at each and every price. Non-price determinants are sometimes called demand shifters.

For closure, instruct students to complete the True/False Quiz.Review students answers.

### EXTENSION ACTIVITY

Assign the students to look for advertisements and newspaper articles related to demand shifters. For each example they find, they should identify the demand shifter and the resulting change in demand.

Ask students to write headlines illustrating each of the demand shifters and write a short news story for each headline.