Changes in Demand

Changes in Demand

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Instructions

Today we are going to explore changes in demand, predict whether they will cause demand to increase or decrease, then predict whether that change is likely to cause price to increase or decrease. We will read a scenario. You will answer 3 questions. Then we will have an explanation before moving on to the next scenario.

Scenario 1

The United States Government had a law that increased unemployment payments by $600. This law expires, ending this benefit. What will likely happen to aggregate demand?

Multiple Choice

Which determinant of demand is this?

• Consumer Income

• Complements

• Substitutes

• Number of Consumers

• Consumer Tastes

Multiple Choice

What will most likely happen to aggregate demand?

• Demand will increase

• Demand will decrease

Multiple Choice

What will that change in demand lead to?

• Surplus

• Shortage

Multiple Choice

What will likely happen to price of all goods or services as a result?

• Price will increase

• Price will decrease

Explanation

In this scenario, we can expect consumer income to decrease, because unemployment benefits have decreased. Less income means consumers have less money to spend which will decrease demand. We can then predict that a decrease in demand will almost always lead to a decrease in price.

Scenario 2

The number of Yemeni people living in Melvindale increases. What is this likely to do to demand for Middle Eastern food in the area?

Multiple Select

Which determinant of demand best describes this scenario? (There are 2 possible correct answers)

• Consumer Income

• Complements

• Substitutes

• Number of Consumers

• Consumer Tastes

Multiple Choice

What will most likely happen to demand for Middle Eastern food?

• Demand will increase

• Demand will decrease

Multiple Choice

What will that change in demand lead to?

• Surplus

• Shortage

Multiple Choice

What will likely happen to price of Middle Eastern food as a result of this change in demand?

• Price will increase

• Price will decrease

Explanation

This is a change in consumer tastes. If you said number of consumers, that is ok too. Because there is a new population that probably has different food preferences from the existing population, it stands to reason that new restaurants would open to serve that population.

Scenario 3

In the last week of the month of June, a grocery store has a sale on hotdogs and hotdog buns. What will this likely do to demand for hodog toppings (ketchup, mustard, onions, chili)?

Multiple Choice

Which determinant of demand best describes this scenario?

• Consumer Income

• Complements

• Substitutes

• Number of Consumers

• Consumer Tastes

Multiple Choice

What will most likely happen to demand for hot dog toppings?

• Demand will increase

• Demand will decrease

Multiple Choice

What will that change in demand lead to?

• Surplus

• Shortage

Multiple Choice

What will likely happen to the price of hot dog toppings as a result of this change in demand?

• Price will increase

• Price will decrease

Explanation

This is a scenario about complements. Complements are goods/services that are usually consumed together. In this case, because there is a sale on hotdogs and hotdog buns, we can conclude that quantity demanded of those will increase (a sale means the price is lower). That will, in turn, likely lead to an increase in demand for things like mustard. In theory this would also lead to an increase in price of toppings. However, because this is a short term change we probably wouldn't see any real change in price for toppings.

Scenario 4

A Wendy's and a McDonald's are located across the street from each other. The Wendy's offers a sale, buy one get one free, on chicken nuggets. What will this likely do to demand for chicken nuggets at McDonald's?

Multiple Choice

Which determinant of demand best describes this scenario?

• Consumer Income

• Complements

• Substitutes

• Number of Consumers

• Consumer Tastes

Multiple Choice

What will most likely happen to demand for McDonald's chicken nuggets?

• Demand will increase

• Demand will decrease

Multiple Choice

What will that change in demand lead to?

• Surplus

• Shortage

Multiple Choice

What will likely happen to the price of McDonald's chicken nuggets as a result of this change in demand?

• Price will increase

• Price will decrease

Explanation

Chicken nuggets from competing fast food restaurants are substitute goods. If the price of chicken nuggets at Wendy's decreases, we can predict that the quantity demanded of those nuggets will increase. In turn, this will result in a decrease in demand for chicken nuggets from McDonald's because people are going to Wendy's. McDonald's will likey have to respond with a sale of their own, which is a decrease in the price.