Demand.

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Presentation transcript:

Demand

Demand: the desire, willingness, and ability to buy a product at various possible prices Demand Schedule: a list of the quantity demanded of a good for each price in a series of possible prices

Law of Demand As price falls, more quantity will be demanded. As price rises, less quantity will be demanded. Inverse relationship exists between price and quantity demanded. Does this make sense with what you see in life?

Demand Schedule for 16 oz. Coca-Cola Coca-Cola Price Quantity Demand Curve $0.25 100 .50 70 .75 50 P 1.00 25 1.25 10 1.50 5 Q Convert the above Demand Schedule into a Demand Curve

Both the schedule and the curve represent the current demand for Coca-Cola. The demand remains the same unless a demand determinant changes. The change will then lead to a new different/shifted curve.

Change in Demand vs. Change in Quantity Demanded A change in demand means a change in quantity demanded at every price. A shift in the demand curve results. A change in quantity demanded occurs only when the price of a good changes. This leads to a movement along the curve, but NOT a shift of the entire curve.

3 Things that help “prove” the Law of Demand and explain why the demand curve is downsloping. 1. Income Effect: At a lower price, you can afford more goods without giving up any alternative goods. A price decline increases your purchasing power 2. Substitution Effect: As prices decrease, the good becomes relatively cheaper compared to substitutes. Buyers who may have purchased the substitute may now buy the cheaper good.

3. Law of Diminishing Marginal Utility: The satisfaction or utility you get from consuming additional units of a good will tend to get less and less. So consumers may only buy additional units if the price is decreased. Ex. Burgers. 1st is very satisfying, 2nd is less, 3rd is even less

6 Non-price Determinants of Demand You MUST know and memorize these!!! 1. Change in consumer tastes and preferences - Examples: - Companies Advertise!! They advertise to change demand! - Society changes – values, norms - Studies, new info

2. Change in number of consumers in the market- Population may increase More young, or older, or men, or women may move into a market

Baby Boomers?

3. Change in income of consumers- As income climbs demand increases As income declines and unemployment increases demand decreases for normal goods Unless it’s an ____________ good!

Change in price of substitutes- Coke prices drop, demand for Pepsi decreases

5. Change in price of complementary goods- As price of peanut butter goes up there’s less demand for jelly

6. Change in expectations of future prices and incomes- If you expect higher prices in the future you’ll buy more now If you expect lower prices in the future you’ll buy less today Huge for stock market and real estate!

And the curves shall shift… Changes in these determinants will cause a new demand schedule, new quantities at each possible price, and a new demand curve.

Remember… When the determinants change for a good, the demand curve will shift… But when the price of the good changes, there will be a movement along the curve.

SHIFT HAPPENS! A Change in Demand This is an increase in demand. Remember : Increase is always to the right! D1 D2 P Q

A Change in Quantity Demanded Is a movement along the curve because of a change in price 5 P 3 100 150 Q

Try the quiz… Online graph challenge Online Multiple Choice