Supply & Demand Analysis Ms. Stack Fall 2008 Economics

DEMAND Assignment #1

Warm-up List 5 things that you have “demanded” in the past month – what do I mean by demand? List 5 things that you have “demanded” in the past month – what do I mean by demand? Why do you demand (choose) one good over another – what are the factors/determinants in why you buy something? Why do you demand (choose) one good over another – what are the factors/determinants in why you buy something? List 5 things you would demand if scarcity did not exist. List 5 things you would demand if scarcity did not exist.

What is “Demand?” A willingness to buy a product at a certain price A willingness to buy a product at a certain price Demand is from the perspective of the buyer Demand is from the perspective of the buyer What are some examples of goods you demand as a consumer? What are some examples of goods you demand as a consumer?

Miss Stack’s “Demand List” Would you prefer brand name or generic products? Would you prefer brand name or generic products?

Law of Demand People will buy more of a product at a lower price than a higher price People will buy more of a product at a lower price than a higher price Why do you think this holds true? Why do you think this holds true?

Demand Schedule

A list of quantity of a product that people are wiling to buy at each price A list of quantity of a product that people are wiling to buy at each price At which price are consumers willing to buy the LEAST pizzas? The MOST? At which price are consumers willing to buy the LEAST pizzas? The MOST? ONLY PRICES WILL CHANGE “QUANTITY DEMANDED” ONLY PRICES WILL CHANGE “QUANTITY DEMANDED”

Quantity Demanded A movement along the Demand Curve that DOES NOT result in a shift – a shift results ONLY when one of the Determinants of Demand is affected A movement along the Demand Curve that DOES NOT result in a shift – a shift results ONLY when one of the Determinants of Demand is affected A price change simply moves you to a new point on the SAME curve A price change simply moves you to a new point on the SAME curve Demand Schedule Example Demand Schedule Example

Demand Schedule

A Shift/Change in Demand A change in demand is determined by a factor in the “Determinants of Demand” A change in demand is determined by a factor in the “Determinants of Demand” The curve will either shift to the left (decrease) or right (increase) The curve will either shift to the left (decrease) or right (increase)

Determinants of Demand Consumer Tastes and Preferences Consumer Tastes and Preferences Potential Customers Potential Customers Money Income of Consumers Money Income of Consumers Substitute Goods Substitute Goods Complementary Goods Complementary Goods Price Expectations Price Expectations

Tastes & Preferences People have different tastes & preferences People have different tastes & preferences Food, Music, Clothes, etc Food, Music, Clothes, etc Advertising, Fashion, & Fads also influence your tastes and preferences for a good Advertising, Fashion, & Fads also influence your tastes and preferences for a good

Potential Customers A large number of consumers can produce a greater demand for the good A large number of consumers can produce a greater demand for the good

$ Income of Consumers If income increases, consumers will demand “normal goods” instead of “inferior goods.” If income increases, consumers will demand “normal goods” instead of “inferior goods.” Normal goods=luxury goods– brand names (i.e. Guess?, Levi’s, The Gap, Nordstrom’s) Normal goods=luxury goods– brand names (i.e. Guess?, Levi’s, The Gap, Nordstrom’s) Inferior goods=“non-brand name” goods (i.e. 99 cent store, Target, Outdoor Flea Markets) Inferior goods=“non-brand name” goods (i.e. 99 cent store, Target, Outdoor Flea Markets)

Substitute Goods If the price of one good increases, the consumer will buy the alternative (or “substitute”) good, instead. If the price of one good increases, the consumer will buy the alternative (or “substitute”) good, instead. This usually happens with similar products. This usually happens with similar products. If the price of a can of Coca-Cola increases to $2.00 while a can of Pepsi is $1.00 (and if you are indifferent between both), which one would you choose? If the price of a can of Coca-Cola increases to $2.00 while a can of Pepsi is $1.00 (and if you are indifferent between both), which one would you choose?

Complementary Goods Some goods “go together.” They will “complement” one another. Some goods “go together.” They will “complement” one another. If the price one complement good increases, the other good will also increase (vice versa). If the price one complement good increases, the other good will also increase (vice versa). Examples: Examples: --Cereal & Milk --Cookies & Milk --Peanut Butter & Jelly

Price Expectations If people expect that prices of a good will increase, it will (and vice versa). If people expect that prices of a good will increase, it will (and vice versa). This will result in a change in demand and shift the demand curve. This will result in a change in demand and shift the demand curve.

Demand Curve A downward sloping line A downward sloping line As one variable goes up, the other variable goes down As one variable goes up, the other variable goes down It slopes downward because consumers buy less at higher prices, more at lower prices The demand curve illustrates an inverse relationship between price & quantity The demand curve illustrates an inverse relationship between price & quantity

Demand Curve (Right Shift) Increases in Demand Curve will shift to the right Increases in Demand Curve will shift to the right

Demand Curve (Leftward Shift)

Supply and Demand Graph

Wrap-Up When we study Demand we are looking at whose perspective? When we study Demand we are looking at whose perspective? What is the difference between “Quantity Demanded” and “Change in Demand?” What is the difference between “Quantity Demanded” and “Change in Demand?” What are the “Determinants of Demand?” What are the “Determinants of Demand?” Define “substitute goods” and give an example. Define “substitute goods” and give an example. Define “complementary goods” and give an example. Define “complementary goods” and give an example. Draw a Demand & Supply Graph-show Prices, Quantity, & Equilibrium Draw a Demand & Supply Graph-show Prices, Quantity, & Equilibrium