Demand 1

What is Demand? Demand is made up of two elements: Who decides demand? Desire for Goods and Services Means to purchase those Goods and Services Who decides demand? How do we determine the demand?

Demand Schedules Lets consider how many Movie Tickets you might demand in a month. ( “Quantity Demanded”) Demand Schedule - a table showing the relationship between the price of a good and the quantity demanded over a period of time, ceteris paribus. ceteris paribus: means "assuming all else is held constant". 6

Demand Schedule P ($) Qd $20 1 $10 2 $5 4

Law of Demand Law of Demand the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus. 11

Demand Schedules and Curves Demand Curve - a diagram showing the relationship between the price of a good and the quantity demanded over a period of time, ceteris paribus. 12

Demand Curve P($) A 20 B 15 C 10 5 Qd per month 10 15 5 19

Market Demand “Market” – Any institution that brings together buyers and sellers of a particular good or service NOTE: this definition does not say anything about size. Adding “market” in front of something means, we are now talking about ALL consumers in the market (and not an individual). So, a “Market Demand Schedule” would be what? And a “Market Demand Curve” would be what? 20

Market Demand Schedule P ($) Jon Qd Bob Mary Market 5 3 12 7 22 10 2 8 15 1 4

Change in D vs. Change in Qd Change in Demand - a change in the desire or means to purchase the good, thus there is a change in quantity demanded at EVERY price and the line shifts. Change in Quantity Demanded (DQd) - movement along a demand curve A change in quantity demanded can only be caused by a change in the price of the good 26

Increase in Demand P D’ D Qd 52

Increase in Qd P($) A B D Qd 58

Change in Demand Factors Which Cause a Change in Demand Number of Buyers Tastes and Preferences Income Price of Other Goods The Availability of Credit Expectations about Future Prices 28

Change in Demand - Number of Buyers If the number of potential buyers in the market for a good change, the demand for that good changes as well. This does not mean just appealing to more/less people in the existing group, but having the “potential buyers” increase/decrease in number.

Change in Demand - Tastes and Preferences A change in what the market wants can change demand. What if it was determined that listening to Beat’s increased intelligence? What if we found out Beat’s emit dangerous radiation? 30

Change in Demand - Income The amount of money you make directly effects your demand. For most goods, the more money you make, the more of that good you will buy. These are called Normal Goods. Normal Good - any good in which demand increases income increases (and vice-versa) 31

Normal and Inferior Goods Some goods are called Inferior Goods. Inferior Good - any good in which demand decreases as income increases (and vice-versa) Can you think of an example? Inferior Goods are usually low cost alternatives to other goods.

Change in Demand - Price of Other Goods Demand for some goods can change because the price of a second good changes. This change in demand takes two forms: A Substitute Good is a good which can be consumed in place of another good, When the price of Good “A” goes up, the demand for substitute good “B” goes up. Can you think of any examples? 35

Change in Demand - Price of Other Goods A good which is a Compliment is a good which is consumed along with the consumption of another good Thus, when the price of Product “A” goes up, demand for compliment good “B” goes down. Can you think of any examples? 38

Change in Demand - Price of Other Goods In Summary, either of the following will increase Demand Price of a substitute good increases Price of a complement good decreases And either of the following will decrease Demand Price of a substitute good decreases Price of a complement good increases 41

Change in Demand - Availability of Credit How easy it is to borrow money will also change demand. This is usually determined by interest rates. If interest rates are low then it is easy to borrow money and demand will go up. If interest rates are high, then it is difficult to borrow money and demand will go down.

Change in Demand - Expectations about Future Prices How we think the price will change in the future will also affect demand. If the price for a product is going to rise in the near future, demand for that product right now will . . . Become greater 44

Change in Demand - Expectations about Future Prices Likewise, if we hear that prices are going to drop soon, what will we do? Wait and buy it later