Your Wish can be Your Demand!

Who Want’s One?

What is Demand?

What is DEMAND? DESIRE!

What is DEMAND? Willingness to Pay and the Ability to Pay

What does it Mean? Demand = the willingness and the ability to pay for goods and services. Prices = tools market uses to coordinate individual desires.

Schedules & Curves Demand vs. quantity demanded Individual demand vs. market demand

Demand Schedule a $15 8 b 12 14 c 9 20 d 6 26 e 3 32 Price Quantity Demanded per Pizza per Week (millions) a $15 8 b 12 14 c 9 20 d 6 26 e 3 32

Demand Curve for Pizza 8 14 20 26 32 Millions of pizzas per week $15 12 9 6 3 Price per pizza a b c d e D

Individual Demand for Pizzas $12 8 4 Price 1 2 3 Pizzas (per week) (a) Hector $12 8 4 1 2 (b) Brianna $12 8 4 1 (c) Chris d H d B d C

Market Demand for Pizzas $12 8 4 Price 1 2 3 Pizzas (per week) (d) Market demand for pizzas 6 d H B C D + =

DEMAND: Curve vs Schedule Shows the relationship Between Price and Quantity Demanded! Your subtopics go here

What quantity of apple juice does Reiko demand at $2 a bottle What quantity of apple juice does Reiko demand at $2 a bottle? What quantity of apple juice does Reiko demand at $1 a bottle? 4 Your subtopics go here

If the price of a bottle of apple juice went from $1. 50 to $1 If the price of a bottle of apple juice went from $1.50 to $1.00, how would that affect the quantity of bottles Reiko would demand? Your subtopics go here

DEMAND vs Quantity DEMANDED entire graph Quantity demanded at ALL prices Quantity Demanded = Points on the curve Your subtopics go here

What is the Law of Demand? What is the relationship between price and quantity demanded?

As $  QTY Demanded  As $  QTY Demanded  Law of Demand There is an inverse relationship between price and quantity demanded. Ceteris Paribus All things remaining constant As Price increases Quantity demanded decreases As Price decreases, Quantity demanded increases As $  QTY Demanded  As $  QTY Demanded 

As price increases, quantity demanded decreases As price decreases, quantity demanded increases As $  QTY Demanded  As $  QTY Demanded 

Demand Curve A graphic way to illustrates the law of demand slopes downward and to the right

What Accounts for the Law of Demand? WHY? What Accounts for the Law of Demand?

What accounts for the law of demand? WHY? What accounts for the law of demand? Income effect Demand changes for some items when a consumer’s income changes Substitution effect People tend to substitute for goods whose price has gone up. Diminishing marginal utility Usefulness of goods lessens with each additional unit you acquire

Demand changes for some items when a consumer’s income changes INCOME EFFECT Demand changes for some items when a consumer’s income changes Normal Goods – any good whose demand increases when income increases  income = demand for the good/service Inferior Goods – any good whose demand decreases when income increases  income = demand for the good/service

People tend to substitute for goods whose price has gone up. Substitution Effect People tend to substitute for goods whose price has gone up. Substitute: A product or service that can take the place of another product or service Complement: A good or service that is used in conjunction with another good or service

Diminishing Marginal Utility What Does It Mean? The usefulness of goods lessens with each addition unit you acquire Example: You just returned from two days on a deserted island with no food or water.

Quantity Demanded v. Demand Shifting Curves Vs. Movement Along the curve

Movement Along a Curve vs. a Shift of the Curve A change in price, other things constant, causes a movement along a demand curve, changing the quantity demanded. A change in one of the determinants of demand other than price causes a shift of a demand curve, changing demand.

Movement Along a Curve A graphical representation of the effect of a change in price on the quantity demanded. Movement from one point on the line to another point

Change in QUANTITY Demanded 100 200 $1 $2 Quantity Demanded Price Pizza Market The price increases from $1 to $2 Quantity Demanded changes from 200 to 100! DEMAND itself did not change! Only move from one point to another! D

Change in QUANTITY Demanded CAUSED by a CHANGE IN PRICE ONLY!

Change in QUANTITY Demanded Pizza Market Effect: MOVEMENT from one point on the curve to another Quantity Demanded Price $2 $1 D 100 200

Shifting Curve A graphical representation of the effect of anything other than price on demand This is known as a CHANGE IN DEMAND

Change in Demand The price a substitute increases. Pizza Market The price a substitute increases. Quantity Demanded changed at every price! NEW CURVE! $2 Price $1 D D1 100 200 300 Quantity Demanded

Change in Demand A change in something OTHER THAN THE PRICE!!!! Quantity Demanded 100 200 300 Price $1 $2 Pizza Market Pizza Market Caused by: A change in something OTHER THAN THE PRICE!!!! $2 Price $1 D D1

Change in Demand SHIFT of the curve Creation of a new curve EFFECT: D Pizza Market EFFECT: SHIFT of the curve Creation of a new curve $2 Price $1 D D1 100 200 300 Quantity Demanded

Change in Demand Shift to the Left = decrease in demand Pizza Market Shift to the Left = decrease in demand Shift to the RIGHT = INCREASE in demand $2 Price $1 D D1 100 200 300 Quantity Demanded

Determinants of Demand What Causes a shift in the Demand Curve?

Determinants of Demand POPULATION  In # of buyers = Demand  In # of buyers = Demand  Example: increase in immigration; plague

Determinants of Demand INCOME  in Income = Demand   in income = Demand 

Determinants of Demand PREFERENCES If something is a fad = D  When something goes out of style = D 

Determinants of Demand EXPECTATIONS Expect $ to  = Demand today  Expect $ to  = Demand today  Example: If expect price of Coke to triple tomorrow, we will buy more Cokes today while they are cheaper

Determinants of Demand RELATED GOODS Price of Complementary Goods When the price of a complement good falls, demand rises for the good whose price has not changed.  In $ of complement = Demand  in $ of complement = Demand  Example: If price of hot dogs increases, then Demand for hot dog buns will decrease

Determinants of Demand Change in Price of Substitutes When the price of a substitute good falls, demand falls for the good whose price has not changed.  in $ of substitute = Demand   in $ of substitute = Demand  Example: If the price of Coke increases, then the demand for Pepsi will increase.

Turn to back of your predictions and complete the chart for homework. Let’s Practice! DEMAND Shifting Scenarios Turn to back of your predictions and complete the chart for homework.

DEMAND SHIFTING SCENARIOS Event 2. Product 3. Demand Shift 4. Determinant The price of steak increases. Hamburger Right b. Price of substitutes Low-fat diets grow in popularity. Fresh grapes e. Tastes and preferences Disney World increases admission prices. Hotel rooms near Disney World. Left d. Price of complements The price of eggs falls. Bacon A hard freeze destroys much of the future orange crop. Orange juice f. Expectations The price of gasoline increases dramatically SUVs f. Price of complements

Let’s Practice as a Class! Get out a piece of paper and draw a large arrow

What Happens to Demand If… The Scenario: You go to your favorite burger place. The price of your favorite burger has increased, but the price of the chicken sandwich is the same. Over the course of the week, you generally buy both burgers and chicken sandwiches. How will the increase in price of a burger affect your purchase of burgers? How does the substitution effect change your purchases? How does the income effect change your purchases?

What Happens to Demand IF… You are the owner of a hotdog making company… people change their preference from hamburgers to hot dogs? Price D1 D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… US negotiates a deal with China to trade hot dogs for egg rolls Price D1 D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… the price of ground beef plummets Price D D1 QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… the price of hotdogs decreases Price D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… At the beginning of summer, the price of hot dogs usually increases. It is now May. Price D1 D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… the minimum wage rises NO CHANGE IMMEDIATELY! This Affects Supply since it is a cost of production Price D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… the MWU threatens to strike if owners fail to meet their demands NO CHANGE IMMEDIATELY! This Affects Supply since it threatens production of goods Price D QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… unemployment hits an all-time high Price D D1 QTY Demanded

What Happens to Demand IF… You are the owner of a hotdog making company… the price of buns increases due to wheat shortage Price D D1 QTY Demanded

Worksheet: Reasons for Changes in Demand Let’s Practice! Worksheet: Reasons for Changes in Demand

We Demand More Practice! Demand Shifters Complete the odd ones now with a partner. When complete, complete the even ones on your own.

  PREFERENCE 1. Harry Potter movies increase interest in the books.   $ Price D Quantity Demanded Harry Potter Books Results in an in QTY DEMANDED DEMAND What caused the movement/ shift? D1 PREFERENCE

Motor Scooters w/high MPG 2. Gas prices have risen to new high levels.   $ Price D Quantity Demanded Motor Scooters w/high MPG Results in an in QTY DEMANDED DEMAND What caused the movement/ shift? D1 Change in price Of Complement

QUIZ TIME!