Life is Demanding

Demand = Consumers Two Factors that need to be considered: 1. Willing 2. Able ($)

LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls Quantity Demanded Price

Graph out the following demand curve for Flaming Hot Cheetos: Price Quantity Demanded 5.00 100 4.50 150 4.00 200 3.50 250 3.00 300 2.50 350 2.00 400

Know this difference: Change in Quantity Demanded- movements along the demand curve Change in Demand- an entire shift in the demand curve Change in Demand A 4.00 Change in Qty Demanded B 3.00 2.00 D1 D 100 150

Changes in Demand = “Shifters” 1. Substitutes: A competing company makes a similar product that is less expensive causing demand for your item to decrease.

Quantity (Millions of Binxys) .55 .50 .45 .40 .35 .30 Prices per Binxy .25 .20 .15 .10 D .05 D1 50 100 150 200 250 300 350 400 Quantity (Millions of Binxys)

Substitutes 8 8

Substitutes 9 9

Substitutes 10 10

Substitutes 11 11

Substitutes 12 12

2.Preferences/ Advertising/ Media Some items become the “trendy” must have item. Millions of dollars are spent letting consumers know about the benefits of their product, therefore the demand may increase. ex. Seasonal item

Quantity (Millions of Binxys) .55 .50 .45 .40 .35 Prices per Binxy .30 .25 .20 .15 D 1 .10 D .05 50 100 150 200 250 300 350 400 Quantity (Millions of Binxys)

Summer of the Shark!!!!!

3. Income level of consumers When a consumer has more or less money, they will demand more or less.

Quantity (Millions of Binxys) .55 .50 .45 .40 .35 .30 Prices per Binxy .25 .20 .15 .10 D .05 D1 50 100 150 200 250 300 350 400 Quantity (Millions of Binxys)

The incomes of consumer change the demand, but how depends on the type of good. Normal Goods As income increases, demand increases As income falls, demand falls Ex. Luxury cars, Sea Food, jewelry, homes Inferior Goods As income increases, demand falls As income falls, demand increases Ex. Generic good, top ramen, spam Spam-Inferior Yachts- Normal Off Brand Cereal-Inferior McDonald’s-Inferior Toilet Paper- Probably no connection to income (The point-some products are very reliant on income and others are not)

Each week you go to your favorite burger place Each week you go to your favorite burger place. The price of a burger has increased, but the price of a chicken sandwich stays the same. Over the course of the week you generally buy both burgers and chicken sandwiches. 1. How will the increase in the price of burgers affect your purchase of burgers? -you will buy fewer burgers because they are now relatively more expensive than chicken sandwiches 2. Describe how the substitution effect changes your purchases. -because the price of burgers increased, chicken is now less expensive. Therefore, you substitute chicken for burgers and buy more chicken and fewer burgers

4. Complimentary Goods: Two goods bought and used together 4. Complimentary Goods: Two goods bought and used together. Price of one affects the other. Bindings Snowboard Can you think of others?

5. Expectations: If you expect a higher price next week you will buy the item today. If you think the item will go on sale you will wait until the sale to make your purchase.

Shifts in Demand (SPICE = Shifters of the demand curve Right or Left) Substitutes Preferences and Advertising Income Level Compliments Expectations

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease.

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 24 24

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 25 25

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 26 26

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 27 27

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 28 28

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Right 2 Substitute 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 29 29

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Right 2 Substitute 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 30 30

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 31 31

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 32 32

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 33 33

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 34 34

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 35 35

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 36 36

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 37 37

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 38 38

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 39 39

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 40 40

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 41 41

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 42 42

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 43 43

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 44 44

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 45 45

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 46 46

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 47 47

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 48 48

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 49 49

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 50 50

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 51 51

Hamburgers (a normal good) Practice First identify the determinant (Shifter). Then decide if demand will increase or decrease. Next, which direction will demand curve shift? Hamburgers (a normal good) American incomes fall due to recession Price for Carne Asada burritos falls to $1 New health craze- “No ground beef” hits Hollywood Hamburger restaurants announce that they will significantly increase prices NEXT month Price of fries and shakes drops 50% Advertising campaign starring Brad Pitt Tax cuts give Americans more money Child dies from tainted beef….News at 11:00 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 52 52

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 53 53

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 54 54

Practice First, identify the determinant (shifter) then decide if demand will increase or decrease Shifter Less/More Left or Right 1 Income Level Less Left 2 Substitute 3 Preferences 4 Expectations More Right 5 Complimentary 6 Advertising 7 8 Number of consumers, increase. Income, decrease. Substitutes, decrease. Price doesn’t shift curve, no change. Tastes and preferences, decrease. Expectations, increase. Complements, decrease. 55 55

Check for Understanding What is the law of demand? 2. What is the difference between a change in quantity demanded and a change in demand? 3. What is the difference between a normal and inferior good?