[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

SHIFTS IN DEMAND CURVES
1.25
When the price of a good increases, the demand for that good
decreases—when everything else is held constant. But in the real
world, everything is not held constant. Any changes other than in the
price of the good in question shift the (whole) demand curve—that
is, they alter the amount that will be demanded at each price. How
the demand curve for candy has shifted as Americans have become
more weight conscious provides a good example. Figure 3.4 shows
hypothetical demand curves for candy bars in 1960 and in 2000. We
can see from the figure that the demand for candy bars at a price of
$0.75 has decreased from 20 million candy bars (point E 1960 ) to 10
million (point E 2000 ), as people have reduced their taste for candy.
PRICE ($)
1.00
0.75
0.50
0.25
0
E 2000 E 1960
Market
demand
curve,
2000
Market
demand
curve,
1960
10 20 30
QUANTITY OF CANDY BARS (MILLIONS)
SOURCES OF SHIFTS IN
DEMAND CURVES
Two of the factors that shift the demand curve—changes in income
and in the price of other goods—are specifically economic factors.
As an individual’s income increases, she normally purchases more
of any good. Thus, rising incomes shift the demand curve to the
right, as illustrated in Figure 3.5. At each price, more of the good
is consumed.
Changes in the price of other goods, particularly closely related
goods, will also shift the demand curve for a good. For example,
when the price of margarine increases, some individuals will substitute
butter. Two goods are substitutes if an increase in the price
of one increases the demand for the other. Butter and margarine
are thus substitutes. When people choose between butter and margarine,
one important factor is the relative price, that is, the ratio
of the price of butter to the price of margarine. An increase in the
price of butter and a decrease in the price of margarine increase the
relative price of butter. Thus, both induce individuals to substitute
margarine for butter.
Candy bars and granola bars can also be considered substitutes,
as the two goods satisfy a similar need. Thus, an increase in the
price of granola bars makes candy bars relatively more attractive,
and hence leads to a rightward shift in the demand curve for candy
bars. (At each price, the demand for candy is greater.)
Sometimes, however, an increase in a price of other goods has
just the opposite effect. Consider an individual who takes sugar in
his coffee. In deciding on how much coffee to demand, he is concerned
with the price of a cup of coffee with sugar. If sugar becomes
more expensive, he will demand less coffee. For this person, sugar
and coffee are complements; an increase in the price of one decreases
the demand for the other. A price increase for sugar shifts the
Figure 3.4
SHIFTS IN THE DEMAND CURVE
A leftward shift in the demand curve means that a lesser
amount will be demanded at every given market price.
PRICE OF CANDY BARS
D 0
D 1
Figure 3.5
Initial
demand
curve
Demand curve
after change
QUANTITY OF CANDY BARS
A RIGHTWARD SHIFT IN THE DEMAND
CURVE
If, at each price, there is an increase in the quantity
demanded, then the demand curve will shift to the
right, as depicted. An increase in income, an increase
in the price of a substitute, or a decrease in the price
of a complement can cause a rightward shift in the
demand curve.
DEMAND ∂ 57