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M02.L03 — Shifts in Demand: Determinants and Comparative Statics

Module: Module 02 — Demand and Willingness to Pay
Lesson: L03 of 05
Duration: ~30 minutes
Level: Introductory
Provenance: Microeconomics 1e (Medeiros) | Khan Academy

Learning Objective

Identify the five determinants of demand and analyze their impact on demand shifts.

Demand Shifters

  1. Income: For normal goods (e.g., Sydney housing), demand rises with income. For inferior goods (e.g., instant noodles), demand falls.
  2. Prices of Related Goods: Substitutes (e.g., Uber vs. taxis) and complements (e.g., smartphones/data plans).
  3. Tastes: Trends (e.g., plant-based meat demand growth).
  4. Expectations: Future price changes (e.g., pre-GST hike spending spikes).
  5. Number of Buyers: Population growth boosts demand (e.g., Melbourne apartments).

Worked Example

Melbourne Cafés During COVID

  1. Income drops → demand falls (inferior good: home coffee).
  2. Fewer tourists → fewer buyers.
  3. Expectation of lockdowns → panic-bought coffee machines.
  4. Result: Leftward demand curve shift.

Common Misconception

"A price change shifts the demand curve."

Price changes cause movements along the curve; only non-price factors shift it.

Key Takeaways

  • Income, related goods, tastes, expectations, and buyer count shift demand.
  • Normal vs. inferior goods react differently to income changes.
  • Comparative statics compare equilibria before/after a shift.

Practice

  1. How might a Brisbane flood shift demand for bottled water?
  2. Is a Tesla a normal or inferior good? Justify.
  3. Graph a demand shift for vegan burgers if beef prices rise.

Further Resources

Provenance: Microeconomics 1e (Medeiros) | Khan Academy