Demand and Supply Analysis Trudie Murray ©

Demand The amount consumers desire to purchase at various prices Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy Trudie Murray ©

Effective Demand Consumers must be willing to buy AND be capable of paying the price set by the supplier Trudie Murray ©

Law of Demand If Price rises – Quantity demanded falls P Q If Price falls – Quantity demanded rises P Q Trudie Murray ©

Individual Demand Individual Demand Schedule Lists the different quantities of a good that an individual consumer is prepared to buy at each price Trudie Murray ©

Market Demand Market Demand Schedule Lists the different quantities of a good that all consumers in the market are prepared to buy at each price. It is derived by adding together all the individual demand schedules for the good Trudie Murray ©

Demand Schedule (Demand for The Wii Games monthly) Trudie Murray ©

Demand Curve At higher prices, consumers generally willing to purchase less than at lower prices Demand curve is said to have a negative slope - downward sloping from left to right Trudie Murray ©

A Demand Point Price per game Market Demand A € games Price (per game) Quantity (games) Trudie Murray ©

Point Price per game Market Demand A € games B € games A B Quantity (games) Price ( per game) Trudie Murray ©

A B C Point Price per game Market Demand A € games B € games C € games Quantity (games) Price ( per game) Trudie Murray ©

A B C D Point Price per game Market Demand A € games B € games C € games D € games Quantity (games) Price ( per game) Trudie Murray ©

A B C D E Point Price per game Market Demand A € games B € games C € games D € games E € games Quantity (games) Price ( per game) Trudie Murray ©

D1D1 Price P QxQx Q1Q1 Quantity An Increase in Demand DxDx Trudie Murray ©

DxDx Price P QxQx Q1Q1 Quantity A Decrease in Demand D1D1 Trudie Murray ©

Factors affecting the demand for a good The Demand Function Dx = f ( Px, Pc, Ps, Y, t, E) Trudie Murray ©

The Demand Function Dx = f ( Px, Pc, Ps, Y, t, E) Px = Goods which obey and do not obey the Law of Demand Pc = Price of Complimentary Goods Ps = Cost of Substitute Goods Y = Income t = Tastes E = Consumers Expectation Trudie Murray ©

Demand for a good depends on its own price If price rises quantity falls If price falls quantity rises P 2 P 1 Q 2Q 1 Quantity Demanded Trudie Murray ©

Demand for a good depends on its own price Complimentary Goods Goods which are used jointly. The use of one involves the use of the other Substitute Goods Goods which satisfy the same needs and thus can be considered as alternatives to each other Trudie Murray ©

Complimentary Goods D 1 D 2 D 1 An increase in price of a complementary good causes the demand for good X to fall An fall in price of a complementary good causes the demand for good X to rise Trudie Murray ©

Substitute Goods (The Substitute Effect) D 2 D 1 D 2 An increase in price of a substitute good causes the demand for good X to rise An fall in price of a substitute good causes the demand for good X to fall Trudie Murray ©

Demand for a good depends on level of income (The Income Effect) Normal Goods A normal good is a good with a positive income effect. A rise in income causes more of it to be demanded, while a fall in income causes less of it to be demanded Trudie Murray ©

Normal Goods D 2 D 1 D 2 A rise in income causes the demand for a normal good to increase from D1 to D2 An fall in income causes the demand for a normal good to fall from D1 to D2 Trudie Murray ©

Demand Depends on Taste If the movement in taste is in favour of the good, it causes an increase in demand, which shifts the demand curve to the right If the movement in taste is against the good, it causes a fall in demand, which shifts the demand curve to the left Trudie Murray ©

Movement in Taste D 2 D 1 D 2 A movement in taste in favour of a good causes demand to increase A movement in taste against a good causes demand to fall Trudie Murray ©

Demand for a good depends on the expectations of consumers Demand for a good will shift to the right if consumers expect: 1. The price of good X to be higher in the future 2. A scarcity of good X in the future 3. Their incomes to be higher in the future Demand for a good will shift to the left if consumers expect: 1. The price of good X to be lower in the future 2. A plentiful supply of good X in the future 3. Their incomes will be lower in the future Trudie Murray ©

Consumer Expectations D 2 D 1 D 2 Demand for Good X will rise if consumers expect higher future price, scarcity or higher future incomes Demand for Good X will fall if consumers expect lower future price, abundance or lower future incomes Trudie Murray ©