Practice with Demand

Today’s Agenda Objective: Review movement along the demand curve and understand the factors that cause an increase/decrease in consumers’ demand of a good at all price points. Essential Skill: State implications and consequences.

Demand Demand is the desire, willingness, and ability to buy a good or service. A demand schedule is a table that lists the various quantities of a product or service that someone is willing to buy over a range of possible prices. The demand curve is the line that connects these points According to the law of demand, quantity demanded and price move in opposite directions.

Changes in Quantity Demanded Change in the quantity demanded due to a price change occurs ALONG the demand curve An increase in the Price of Widgets from $3 to $4 will lead to a decrease in the Quantity Demanded of Widgets from 6 to 4.

Review Complete the review packet When your finished compare your answers with a partner Be prepared to share your answers

Changes in Demand Demand Curves can also shift in response to the following factors: Tastes: changes in preference or popularity of product/ service changes in the number of consumers Income: changes in consumers’ income Related goods: compliments and substitutes Expectations: changes in what consumers expect to happen in the future Size of Market (# of): changes in the number of consumers TIRES: factors that shift the demand curve

Consumer Tastes or Preferences

Consumer Income Normal v. Inferior goods Normal good consumption (demand) increases with a larger income Inferior good consumption (demand) decreases with a larger income If you were given $1 million dollars, which would you choose?

Related Good’s Prices Substitutes v. Complements If the rise in price of one good drives consumers to purchase an alternative good, they are said to be substitutes If the fall in the price of one good drives consumers to purchase more of another good, they are said to be complements

Consumer Expectations About Future Price If outlook is a drop in price, demand will decrease today If outlook is a increase in price, demand will increase today

Size of Consumer Market

Practice Identify whether the change is a change in demand or a change in quantity demanded. Explain how you know. Consumers Income Drops Millions of Immigrants Enter the U.S. Price of Foreign Autos Drop Major Cities Add Inexpensive Bus Lines Price of U.S. Auto Rises Price of U.S. Autos Expected to Rise Soon Families Look Forward to Summer Vacation U.S. Auto Firms Launch Effective Ad Campaigns

Practice Identify whether the change is a change in demand or a change in quantity demanded. Holly gets a raise at work and decides that she will by more music downloads. David notices that the price of coffee has increased, so he buys less coffee. George decides not to buy new tires now since he expects tire prices to fall next month. Eric notices that the prices of Coke is higher and as a result buys more Pepsi. As the population ages, more people buy hearing aids. James decides to buy more peanut butter as a result of jelly going on sale. Madeline does not need to buy diapers anymore for her three-year-old son.