Future Price Expectations and Demand Shifts

Economics Grades High School 4:34 Video
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Lesson Description

Explore how expectations about future prices influence current demand in microeconomics. This lesson uses real-world examples to illustrate demand curve shifts.

Video Resource

Change in expected future prices and demand | Microeconomics | Khan Academy

Khan Academy

Duration: 4:34
Watch on YouTube

Key Concepts

  • Demand Curve
  • Expectations of Future Prices
  • Demand Shift
  • Ceteris Paribus

Learning Objectives

  • Explain how expectations of future price increases affect current demand.
  • Explain how expectations of future price decreases affect current demand.
  • Illustrate the shift of the demand curve based on expectations.
  • Apply the concept to different types of goods and services.

Educator Instructions

  • Introduction (5 mins)
    Begin by reviewing the law of demand and the concept of 'ceteris paribus'. Briefly discuss factors that can shift the demand curve (covered in prior lessons).
  • Video Viewing (7 mins)
    Play the Khan Academy video 'Change in expected future prices and demand'. Instruct students to take notes on the key examples.
  • Discussion: Price Increase Expectations (8 mins)
    Discuss the scenario where people expect future prices to increase. Ask students for real-world examples (e.g., gasoline before a hurricane, sales before a holiday).
  • Discussion: Price Decrease Expectations (8 mins)
    Discuss the scenario where people expect future prices to decrease. Ask students for real-world examples (e.g., electronics, seasonal clothing).
  • Demand Curve Exercise (7 mins)
    Have students sketch demand curves illustrating both scenarios: increased demand due to expected price increases, and decreased demand due to expected price decreases.
  • Conclusion (5 mins)
    Summarize the impact of expectations on demand and revisit the learning objectives.

Interactive Exercises

  • Market Simulation
    Present students with different scenarios involving expected future price changes for various goods. Have them predict the impact on current demand and explain their reasoning.

Discussion Questions

  • Can you think of a time when you changed your buying behavior based on expected future prices? Explain.
  • How do retailers use expectations of future price changes to influence consumer behavior (e.g., limited-time offers, clearance sales)?
  • What types of goods are most susceptible to changes in demand based on expected future prices, and why?

Skills Developed

  • Critical Thinking
  • Economic Reasoning
  • Analytical Skills
  • Application of Concepts

Multiple Choice Questions

Question 1:

If consumers expect the price of a product to increase in the future, what is the likely impact on the current demand for that product?

Correct Answer: Demand will increase.

Question 2:

Which of the following products is MOST likely to experience a significant change in demand due to expectations of future price decreases?

Correct Answer: The newest smartphone.

Question 3:

The term 'ceteris paribus' means:

Correct Answer: All else being equal.

Question 4:

If a major tech company announces a new model of laptop will be released next month, and the current model will be heavily discounted, what will likely happen to the demand for the current model laptops?

Correct Answer: Demand will decrease.

Question 5:

Which of the following best describes the effect of expecting future price decreases on the demand curve?

Correct Answer: A shift to the left.

Question 6:

Why does expecting future price increases cause consumers to purchase more now?

Correct Answer: To save money before the price increases.

Question 7:

A grocery store advertises a 'buy one get one free' deal on canned goods which expires in one week. What economic principle is the store leveraging?

Correct Answer: Expected Future Prices

Question 8:

If a natural disaster is expected to disrupt the supply chain for building materials, how will this affect the demand and price of these materials in the short term?

Correct Answer: Demand and price will both increase.

Question 9:

Which of the following is NOT a factor held constant under 'ceteris paribus' when analyzing the law of demand?

Correct Answer: Price of the good itself.

Question 10:

In the context of economics, 'demand' refers to:

Correct Answer: The entire demand curve.

Fill in the Blank Questions

Question 1:

When people expect future prices to increase, the current demand curve shifts to the ________.

Correct Answer: right

Question 2:

The assumption that 'all else is equal' is known as ________ ________.

Correct Answer: ceteris paribus

Question 3:

When future prices are expected to decrease, consumers are likely to ________ their purchases.

Correct Answer: delay

Question 4:

A shift in the demand curve represents a change in ________, not just quantity demanded at a particular price.

Correct Answer: demand

Question 5:

Consumer ________ about future prices are a non-price determinant of demand.

Correct Answer: expectations

Question 6:

The expectation of a future sale or discount can ________ current demand.

Correct Answer: decrease

Question 7:

Electronics often decrease in price over time, so consumers often ________ purchasing them until later.

Correct Answer: delay

Question 8:

If a product cannot be stored easily, expectations of future price changes will have a ________ impact on current demand.

Correct Answer: lesser

Question 9:

The expectation of a severe weather event can cause demand for items like plywood and bottled water to ________.

Correct Answer: increase

Question 10:

When people expect future prices to decrease, the current demand curve shifts to the ________.

Correct Answer: left

Educational Standards

SOC.9-12.E.3.1:Analyze how price and non-price factors affect the demand and supply of goods and services available in the marketplace. SOC.9-12.E.1.1:Define and apply basic economic concepts of money supply, scarcity, surplus, choice, opportunity cost, cost/benefit analysis, risk/reward relationship, incentive, disincentive, and trade-off to a variety of economic situations. SOC.9-12.E.4.2:Explain how people’s own self-interest, incentives, and disincentives influence market decisions.

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