Supply & Demand Unit 1

iPhone 6 Price Quantity $600 $300 $100

Milk Price Quantity $2.00 $4.00 $6.00 $8.00 $10.00

What is Market Research? The Big Bang Theory 5x05 - The Sword - YouTube

PRICE A neutral source on information Allows for change in the economy It allows freedom of choice

DEMAND

Demand Demand is the desire to have some good or service and the ability to pay for it. The law of demand states that when the PRICE of a good or service GOES DOWN, consumers buy MORE, meaning demand increases. If price goes UP, demand should DECREASE.

Demand Curve DEMAND CURVE Pt. Price of DVDs Quantity Demanded A $30 B B $25 1 C $20 2 D $15 3 E $10 4 F $5 5 B 25 DEMAND CURVE C 20 D 15 E 10 F 5 1 2 3 4 5 Quantity

Movers vs. Shifters

Movement on the Curve Change in quantity demanded is a change in PRICE or QUANTIY. This will cause you to move along the curve, up/down. We call these “movers”

Change in Quantity Demand Price B C D Moves along the curve E F Quantity

Demand Changes Change in demand meanwhile is a change in the AMOUNT YOU BUY. This means the curve will shift to the left or to the right. We call these “shifters” There are six factors that influence this.

Change in Demand Shifts left or right A A B Price B C C D D E E F F Quantity

6 Factors for Change in Demand

Substitutes Substitutes are goods/services that can be used in place of another good or service. If the price of a substitute changes, people may be more/less inclined to get the original item. Examples Pepsi or Coca Cola Ordering Pizza or Chinese for dinner

Substitute’s price goes up ie. Coke Substitute’s price goes down Pepsi Pepsi

Complements Complements are goods that are used together, so that a rise in demand in one good will increase the demand for the other good. If a price change occurs for the complement, it will affect the demand for the original item.

Complement’s price goes up Complement’s price goes down Cereal Cereal

Income People’s ability to buy certain goods is affected by their income. If their income changes, then their ability to buy certain goods will change. Less money means the curve will shift left, more money will shift the curve to the right. .

Recession hits: Lower Incomes Economic Growth: Higher Incomes Dr. Pepper Dr. Pepper

Consumer Tastes People’s tastes are constantly changing! Advertising influences people’s tastes. http://www.youtube.com/watch?v=R55e-uHQna0

Terms Normal Goods – goods consumers demand more of when their income rises. Inferior Goods – goods that consumers demand more of when their income falls.

Recession hits: Generic brand goods Economic Growth: Generic brand goods Tops gummy bears Tops gummy bears

Consumer Expectations If you expect a product to go on sale, you wait to buy that product Examples Cars Gas Tickle-Me-Elmo Smart Phones

Consumers expect price to rise Consumers expect price to fall IPhone IPhone

Market Size The size of the market is based on the number of consumers. Example People leaving Buffalo has caused a smaller market size. More people moving to Florida and Texas has created larger market sizes in these states. If people leave a region, the market size will decrease meaning the curve will shift to the left and vice versa.

Bigger Population Smaller Population http://www.youtube.com/watch?v=8E0SoagJCx4

Elasticity of Demand Elasticity of demand is how responsive consumers are to price changes. Elastic demand – quantity demanded will change greatly as price changes.

Elastic Demand Price When demand is elastic, prices will not change much, but quantity demanded will change. 30 25 DEMAND CURVE A 20 B C 15 D E F 10 5 1 2 3 4 5 Quantity

Inelastic Demand Price A Inelastic demand states that quantity demanded will change little as price changes. 30 B 25 DEMAND CURVE C 20 D 15 E 10 F 5 10 20 30 40 50 Quantity

Factors that Determine Elasticity Are there good substitutes? Yes = Elastic No = Inelastic What proportion of income does it use? Large = Elastic Small = Inelastic Is it a necessity or a luxury? Luxury = elastic Necessity = inelastic