Demand How does demand affect what producers are willing to supply to the market?

Law of demand= Consumers buy more of a good when its price decreases Less when its price increases. What Is the Law of Demand?

3 Economic Concepts Important to Demand 1.Income effect - an increase or decrease in consumer purchasing power caused by a change in price. –Purchasing Power- the amount of income that people have to spend on goods and services. 2. Substitution Effect- consumer’s tendency to substitute a lower price good for a similar 1 that is priced higher. 3. Diminishing marginal utility- the usefulness of each unit consumed decreases with each additional unit.

The Demand Schedule A demand schedule is a table that lists the quantity of a good a person will buy at each different price. A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at each different price.

Market Demand Curve Slices of pizza per day Price per slice (in dollars) Demand The Demand Curve A demand curve is a graphical representation of a demand schedule. Notice it slopes downward – D for downward

Law in Action R-burg’s Demand for Krystal Cheeseburgers Price of a single KC Quantity Demanded $.2512 $.5010 $.756 $1.004 $1.502 $2.000 ( Substitute other junk food!) Krystals will not go below $.25, it represents a price below cost of production

R-burg’s Krystal Demand Curve

Shifts in Demand The Law of Demand only works assuming “all other things are held constant.” When this assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.

Shifts of the Demand Curve Determinants of demand: Factors other than price that influence the amount of demand for a good or service. –Shifts the curve to the right (increase) or the left (decrease)

1. Income -Changes in consumers incomes affect demand. -Normal good: good that consumers demand more of when their incomes increase. -Inferior good: good that consumers demand less of when their income increases. 2. Consumer Expectations Whether or not we expect a good to increase or decrease in price in the future greatly affects our demand for that good today. 3. Population Changes in the size of the population also affects the demand for most products. 4. Consumer Tastes and Advertising Advertising plays an important role in many trends and therefore influences demand. What Causes a Shift in Demand? Several factors other than price changes can lead to a change in demand:

The demand curve for one good can be affected by a change in the demand for another good. 5. Prices of Related Goods Complements are two goods that are bought and used together. Example: skis and ski boots Substitutes are goods used in place of one another. Example: skis & snowboards

Product 1Product 2Substitute or Complement 1.PepsiCoke 2. HamburgerKetchup 3. HamburgerBean Burrito 4. ComputerFlash Drive 5. PencilNotebook Paper 6. DVDsBlu-rays 7. Ear budsIPod Substitute Complement Substitute Complement Substitute Complement

Fill in the answers to the following questions with (increase/decrease) or (complement/ substitutes. Exp. The price of Big Macs increases causing a decrease in the Big Mac market. Therefore, the demand for Mc Fries decreases because the two items are complements.

1.The cost of Honda Accords decreases, causing ________ in the Honda market. Therefore, the demand for the Toyota Camry (assume they have about the same value) __________ because the two items are______________. 2.The cost of automobile maintenance increases, causing__________ in the maintenance field. Therefore, the demand for public transportation _______because it is____________. an increase decreases substitutes a decrease increases A substitute

3. The price of movie theater tickets increases, causing ________ in the movie ticket market. Therefore, the demand for movie rentals_________ because the two items are _____________. 4. The price of I Pods decreases, causing ____________ in the I Pod market. Therefore, the demand for mp3s __________ because they are ______________. a decrease increases substitutes an increase increases complements

Which way would a demand curve shift in the following scenarios? Write “left” or “right” and which determinant of demand caused the shift. 1. Papa John’s Pizza is offering $1 pizzas for students on Monday nights. 2. The government releases a report that Taco Bell’s meat is actually dog food. 3. Susan’s job at Six Flags ends in late October. 4. John has taken a second job. 5. Abercrombie opened a new store dedicated to pre- teens. 6. The local Pepsi plant has an explosion and has to close, what happens to the demand for Coke? 7. The price of jelly increases 200%, what happens to the demand for peanut butter? RIGHT – Tastes & Adv. LEFT – Cons. Expectations LEFT – Inc. RIGHT - Income RIGHT – Tastes & Adv. RIGHT- Related LEFT – Related good

DEMAND HEADLINES Read the following newspaper headlines. In each case decide if the event will cause a change (shift) in the demand for beef in May. If so, determine if it is an increase (right shift) or a decrease (left shift) and tell which of the determinants of demand has caused the shift: Prices of related goods Income Consumer Expectations Population Consumer Tastes and Advertising

HEADLINE 1: Eating chicken causes weight loss sooner than beef. Example: Demand (for beef in May) __________ because ____________________________ HEADLINE 2: Millions of foreign immigrants swell the US population Demand ______________ because of _______________ HEADLINE 3: Pork prices drop Demand _______________ because __________________________________ decreases Consumer tastes increases population decreases Of price of related goods

HEADLINE 4: Surgeon General warns that eating beef can be hazardous to your health Demand _____________ because ____________________________ change. HEADLINE 5: Real income for Americans drops third month in a row Demand ______________ because __________________________. decreases Income changes decreases Consumer expectations