9/14/15 Topic: Demand EQ: How and why does demand change? Bellwork: Set up your Cornell notes, then answer the following at the top of your notes and be prepared to share: What are 5 goods or services you paid for recently? How much did you pay for them? What made you decide to spend the money on them?

Understanding Demand

Demand Demand is the desire to own something and the ability to pay for it The Law of Demand says that consumers buy more of a good when its price decreases, and less when its price increases The substitution effect is when consumers react to an increase in a good’s price by consuming less of that good and more of other goods The income effect describes the change in consumption resulting from a change in real income

Demand Schedules A demand schedule is a table that lists the quantity of a good a person will buy at each different price A market demand schedule shows the quantities demanded at each price by all consumers in the market Individual Demand ScheduleMarket Demand Schedule Price of a slice of pizzaQuantity demanded per dayPrice of a slice of pizzaQuantity demanded per day $ $ $ $ $

Demand Graphs The demand curve is a graphic representation of a demand schedule The demand curve is created by creating plot points from the data in the demand schedule. Price is always on the Y-axis Quantity demanded is always on the X-axis

Individual Demand Schedule Price of a slice of pizza Quantity demanded per day $1.004 $1.503 $2.002 $2.501 $3.000 Demand (D)

Changes in Demand Ceteris paribus is a Latin phrase for “all other things held constant” A change in quantity demanded means that consumers are buying more or less of a good or service Change in quantity is always because of price, and only price Change in quantity demanded is represented by movement along the demand curve.

Changes in Demand When we allow other factors to change, we see a change in demand A change in demand is when the entire curve shifts left or right A shift of the curve to the right means an increase in demand A shift of the curve to the left means a decrease in demand A change in demand can be caused by five shifters: Income Consumer Expectations Population Consumer Tastes Related Goods

Curve Shifters If a person’s income increases or decreases, the curve will move left or right because they will demand more or less at every price Most items are normal goods; consumers demand more when their incomes increase The curve shifts to the right when income increases, and left when income decreases Inferior goods are goods that consumers demand less of when their incomes increase The curve shifts to the right when income decreases, and left when income increases

Curve Shifters If consumers think the price will go up or down, it will influence their immediate demand If consumers expect prices to rise, they will buy sooner, causing immediate demand to increase (shift right) If consumers expect prices to decrease, they will put off a purchase, causing immediate demand to decrease (shift left) Population can affect demand, by increases or decreases in population, or a change in the demographics of a population

Curve Shifters Changes in consumer tastes or preferences, and advertising, can affect the demand for a product Complements are two goods that are usually bought and used together Substitutes are goods used in place of one another

D D1D1 D2D2 Decrease in Demand Increase in Demand

Review time!

Practice time! Think of something you would demand right now—something that you have the desire for AND the ability to pay for (no Ferraris) Create an individual demand schedule on your paper for this product Plot your data points on the graph Follow the directions on #1-4 at the bottom of the page