A Lesson on Demand

What is Demand? Willing and able to purchase a product at a particular price How many of you would like a Porsche [or like vehicle]? How many of you are able? What’s the difference between willing and able? Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

Demand Schedule A table that lists at various prices, the number of items demanded Demand Curve – the graphic representation of demand Graphing a Demand Schedule: The lower left quadrant is “0” The vertical axis is price The horizontal axis is quantity Graph the numbers from the Lollipop Demand Schedule

Example: Demand for Lollipops Totals 10 20 30 40 50

Law of Demand As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases P QD Price per pound of coffee beans Quantity of Coffee Beans Demanded (billions of pounds) $2.00 7.1 1.75 7.5 1.50 8.1 1.25 8.9 1.00 10

Demand Curve for Coffee Beans

Change in Quantity Demanded vs. Change in Demand Caused by change in own price of good Movement along the curve Change in Demand: Caused by Change in determinant of demand Shift to new demand curve

Demand Determinants Income Normal Good: a good for which demand increases as consumer incomes rise (milk) Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides) As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

Determinant - Income

Determinants con’t Preference/Taste Consumer Expectations Likes and dislikes in consumption Consumer Expectations Change in future price of goods Change in future income Population Change As the number of consumers in a market changes the demand will change

Determinants con’t Consumer Expectations Change in future price of goods Change in future income

Determinants con’t Population Change As the number of consumers in a market changes the demand will change

Determinants con’t Prices of Related Goods Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke) Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)

Determinants con’t Related Goods Compliments Substitutes