Different Goods Diagram Intro CausesExceptions More Demand Diagrams! & changes in the conditions of demand

Different Goods Diagram Intro CausesExceptions Lesson Objectives To review factors that cause a MOVE and a SHIFT in Demand. To be able to apply the concepts of different types of goods to issues of demand.

Different Goods DiagramCausesIntroExceptions Basic Demand curve… The quantity of a product consumers are willing and able to buy at different prices in a specified time period –Normally there is an inverse relationship between the price of good X and the quantity demanded of good X

Different Goods DiagramCausesIntroExceptions Movements along a demand curve

The Demand Curve Quantity Demanded Demand P1 Q1Q2 P2 Price

A contraction of demand Quantity Demanded Demand P1 Q1Q2 P2 A contraction of demand due to a higher price Price

An expansion of demand Quantity Demanded Demand P1 Q1Q2 P2 An expansion of demand due to a lower price Price

Different Goods DiagramCausesIntroExceptions Exam skills in drawing diagrams Do not draw too small or too big! Keep it neat! Always label axis with a 0, and top/bottom titles. MUST label curve(s) Draw on movement arrows (on the axis)

Different Goods DiagramCausesIntroExceptions What comes first? The change in price or a change in demand? A change in price causes a….. movement along the demand curve!

Different Goods DiagramCausesIntroExceptions Falling Prices and Demand Many goods and services are cheaper now in both money and real terms than they were a few years ago –Short-break holidays overseas –Prices of new audio-visual equipment –Personal computers –New car prices When prices are falling, we see a rise in the quantity demanded as consumers respond to the change in price

Different Goods DiagramCausesIntroExceptions Shifts in Demand

Different Goods DiagramCausesIntroExceptions Quantity Demanded D1 P1 Q1Q2Q3 D2 D3 Increase in Demand Decrease in Demand Price What can cause demand to increase or fall, despite the price remaining the same?

IntroDiagramCauses Different Goods Exceptions Causes of an outward shift in demand A rise in the real incomes of consumers An increase in the price of a substitute good (i.e. a competing product) A fall in the price of a complementary good A change in consumers’ preferences towards the good An increase in the size of the total population A fall in interest rates A rise in consumer confidence Social changes which affect total demand for a product

IntroDiagramCauses Different Goods Exceptions Group work You will be given an image slide to work in groups of 3’s You need to be able to EXPLAIN the specific factors that would influence an increase in market demand for the good/service on your sheet! After 5 mins you will need to feedback your ideas to the group – ‘elect’ a spokesperson in your group!

IntroDiagramCauses Different Goods Exceptions Individual work…. Using your whiteboard…. Sketch some demand curves for the following situations and think of how you would expect the demand curve to change….

IntroDiagramCauses Different Goods Exceptions QUICK FIRE DRAWINGS… The demand for choc following campaign on the dangers of obesity The demand for oranges following a medical research linking a reduction in colds and eating/drinking oranges.

page 01page 02page 03 Different Goods Exceptions Different types of goods Normal Substitutes Complementary Inferior Ostentatious

page 01page 02page 03 Different Goods Exceptions Substitutes Substitutes are goods in competitive demand –They are replacements for another product –For example, a rise in the price of Esso petrol (other factors held constant) should cause a substitution effect away from Esso towards Shell or other competing brands

page 01page 02page 03 Different Goods Exceptions What could be a substitute product for: Esso petrol? BT phone line? Budget car rental? Fresh salmon? Beer? Nike trainers?

page 01page 02page 03 Different Goods Exceptions Changes in price of Substitutes P1 Q1Q2 Demand Output (Q) Price of Texaco petrol P1 Q1 Q2 D1 Output (Q) Price of Shell petrol P2 D2 IntroDiagramCauses

page 01page 02page 03 Different Goods Exceptions Complements Complements are said to be in joint demand –Examples include: fish and chips, DVD players and DVDs, iron ore and steel –A rise in the price of a complement to Good X should cause a fall in the demand for X

page 01page 02page 03 Different Goods Exceptions What are the complement goods to these items? To fish and…. DVD players Ipods Flights from London to New York A fall in price for digital camera A change in the demand for these goods will directly effect the demand for their complementary goods. The extent to which a change in the price of one good leads to a change in the demand for a complement is determined by the cross-price elasticity of demand.

page 01page 02page 03 Different Goods Exceptions Inferior Goods For normal products, more is demanded as income rises, and less as income falls There are exceptions called inferior products They are often cheaper poorer quality substitutes for some other good With a higher income a consumer can switch from the cheaper substitute to preferred alternative As a result, less of the inferior product is demanded at higher levels of income

page 01page 02page 03 Different Goods Exceptions Ostentatious Goods Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people! Jimmy Choo £460 Dolce & Gabbana £250

page 01page 02page 03 Different Goods Exceptions Ostentatious Goods Olympic Gold medallist rewarded with Jimmy Choo shoes!

IntroDiagramCauses Different Goods Exceptions Some goods & services do not have an inverse relationship with price… Ostentatious goods – the lower the price, the target customers will not want the product, but the higher the price – the higher the demand! Speculative demand - potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit

IntroDiagramCauses Different Goods Exceptions Giffen Goods - special type of inferior good may exist, which disobeys the "law of demand". When the price of a Giffen Good decreases, the demand for that good decreases. This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand.income effect The observed demand curve would slope upward, indicating positive elasticity.demand curveelasticity

IntroDiagramCauses Different Goods Exceptions On your whiteboard…. On one side write OUTWARD On the other write INWARD Then be prepared to decide what the effect of the following will have on demand.

IntroDiagramCauses Different Goods Exceptions What if….. Substitute products’ price increase? Incomes fall – what will be the effect on ‘normal’ goods? A product has a major advertising campaign? Science proves that regular mobile phone use damages memory! Price of newspaper increases…..? Careful… Inward or outward shift? In your notes– draw a diagram to show the ‘impact’ on the demand schedule(s) for each of these situations

Changes in price of Substitutes P1 Q1Q2 Demand Output (Q) Price of Texaco petrol P1 Q1 Q2 D1 Output (Q) Price of Shell petrol P2 D2

IntroDiagramCauses Different Goods Exceptions Homework… Research and find an three examples of a good/service… ‘normal’ goods inferior goods ostentatious goods Eg Shoes… Christian Lacroix Large bow shoe boots £365 Normal? Have I mentioned my fascination for shoes yet?

Use the next few slides as handouts for group work…

What factors are influencing market demand for smoothies?

What factors are influencing market demand for houses?

What factors are influencing market demand for second hand cars?

What factors are influencing market demand for bread makers?

What factors are influencing market demand for holiday cottage in UK?

What factors are influencing market demand for buses?

What factors are influencing market demand for wellingtons?

What factors are influencing market demand for cinema experience?