Income What would happen to your demand for ice cream if you lost your job one summer? Most likely, it would fall. A lower income means that you have less to spend in total, so you would have to spend less on some—and probably most—goods. If the demand for a good falls when income falls, the good is called a normal good.
Not all goods ant normal goods. If the demand for a good rises when income falls, the good is called an inferior good. An example of an inferior good might be bus rides. As your income falls, you are less likely to buy a car or take a cab and more likely to ride a bus.
Pricot of Rotated Goods Suppose that the price of frozen yogurt falls. The law of demand says that you will buy more frozen yogurt. At the same time, you will probably buy less ice cream. Because ice cream and frozen yogurt are both cold, sweet, creamy desserts, they satisfy similar desires. When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes Substitutes are often pairs of goods that are used in place of each other, such as hot dogs and hamburgers, sweaters and sweatshirts, and movie tickets and video rentals.
Now suppose that the priceof hot fudge falls. According to the law of demand, you will buy more hoi fudge. Yet In this case, you will buy more ice cream as well because ice cream and hot fudge an; often used together. When a fall in the price of one good raises the demand for another good, the two goods arc called complement*. Complements are often pairs of goods that are used together, such as gasoline and automobiles, computers and software, and peanut butter and jelly.
Tastos The most obvious determinant of your demand is your tastes. If you like ice cream, you buy more of it. Economists normally do not try to explain people's tastes because tastes are based on historical and psychological forces thai are beyond the realm of economic». Economists do, however, examine what happens when tastes change.
normal good a good for which, other thing« equal, an increase in income leads to an irtcreaso in demand inferior good a good for which, other thmg« equal, an m<rea*e in income leads to a decrease demand substitutes two goods for which an increase m th* pnee of one leads to an increase in the demand for the Other complements two goods for which an increase in the price of one leads to a decrease in the demand for the other to tx 0 ■t
Expectations Your expectations about the future may affect your demand for a good or service today. For example, if you expect to earn a higher income next month, you may choose to save less now and spend more of your current income buying ice cream. As another example, if you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today's price.
Number of Buyers In addition to the preceding factors, which influence the behavior of individual buyers, market demand depends on the number of these buyers. If Peter were to join Catherine and Nicholas as another consumer of ice cream, the quantity demanded in the market would be higher at every price, and market demand would increase.
Summary The demand curve shows what happens to the quantity demanded of a good when its priiv varies, holding constant all the other variables that influence buyers. When one of these other variables changes, the demand curve shifts- I able 1 lists the variables that influence how much consumers choose to buy of a good.
If you have trouble remembering whether you need to shift or move along the demand curve, it helps to recall a lesson from tin- appendix to Chapter 2. A curve shifts when there is a change in a relevant variable that is not measured on either axis. Because the price is on the vertical axis, a change in price represents a movement along the demand curve. By contrast, income, the prices of related goods, tastes, expectations, and the number of buyers are not measured on either axis, so a change in one of these variables shifts the demand curv e.
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