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DEMAND the desire, ability and willingness of consumers to buy a good or service 9

Desire Do you want it? If not, then you do not have DEMAND for a product. 10

Ability Can you afford it? Do you have the ability to pay for it? If not, then you do not have DEMAND for a product. 11

Willingness Are you ready to buy it voluntarily, without being forced? If not, then you do not have DEMAND for a product. 12

What is your DEMAND for these goods? 1. Car 2. Vacation 3. House 4. Skis, Boots and Poles 5. Cell Phone 6. Coffee Drink 7. Guitar 8. Dog 13

DEMAND the desire, ability and willingness of consumers to buy a good or service 14

DEMAND SCHEDULE A price / quantity schedule showing amounts of a good or service consumers are willing and able to purchase at a set of prices during a specific time period. 15

DEMAND SCHEDULE Price Quantity Demanded (Qd)

DEMAND CURVE A graph illustrating the amounts of a good or service consumers are willing and able to purchase at a set of prices during a specific time period. 17

Demand Curve Qd P D1 18

LAW OF DEMAND Price and consumer demand have an inverse (opposite) relationship. If price goes up, consumer demand goes down. If price goes down, consumer demand goes up. 19

Change in Quantity Demanded * Caused by an immediate change in the price of the item you want to buy * A change in quantity demanded is illustrated by movement ALONG a demand curve, from point to point as the price of the consumer good changes. 20

Change in Quantity Demanded Example: Chicken wings are regularly 15 cents a piece, and you usually eat 20 wings. Today wings sell for 10 cents a piece, so you buy 30 wings. At 9pm, wings will sell for 5 cents each, and you will buy 40 wings. The change in price causes an increase in your quantity demanded. 21

Change in Quantity Demanded is caused by one of the following: The Income Effect: the changed price makes you feel like you have more money in your pocket to spend, causing you to purchase more of the item. (p87) EXAMPLE: The donuts you wanted to buy are on special. You can buy 2 for the price of one (BOGO). The savings make you feel like you have MORE MONEY, so you BUY MORE! 22

Change in Quantity Demanded is caused by one of the following: Substitution Effect: relative to other goods/services, the price of the G/S you buy is less, causing you to purchase more of it. (p87) EXAMPLE: a new CD costs you $15, but I- Tunes offers single songs for 99 cents. Rather than buy a CD, you purchase 10 songs on i-tunes. 23

CHANGE IN DEMAND A change in Demand is illustrated by a new demand curve. At every price, more of a good or service is purchased. Or, at every price, less of a good or service is purchased. Change in Demand is caused by one of the determinants of demand 24

Demand Curve Qd P DD2 D1 D1: Increase in Demand from original D to D1 D2: Decrease in Demand from original D to D2 25

Change in Demand Caused by change in CONSUMER INCOME (p88) Your spending habits change with your income EX: You were making $8/hr; now you are making $16/hr; in 3 years, you’ll make $50/hour How is celebrity spending different from your spending habits? 26

Change in Demand Caused by Consumer TASTES AND PREFERENCES – trends (p88) As an item becomes more popular, demand increases; demand decreases as the good loses favor EXAMPLES: –Walkman v. I-POD –Pet Rock v. Webkinz –VCR v. DVD Player 27

Change in Demand Caused by the Price of RELATED PRODUCTS (substitutes and compliments) (p88-89) Substitutes – You can buy DVDs rather than videos Compliments – Maple trees get a fungus and die; no maple syrup; the demand for pancake and waffle mix decreases 28

Change in Demand Caused by PRICE EXPECTATION – the anticipated FUTURE price of the product (NOT in text book) You decide to buy or not buy based on what you think will happen in the market at a future time EXAMPLE : You expect the price of the Wii to decrease after Christmas. How does that affect demand today? 29

Change in Demand Caused by the NUMBER OF CONSUMERS or buyers in the market (NOT in text book) EXAMPLE: What is the demand for popcorn in a movie theater? Outside? EXAMPLE: What is the demand for a college degree today? 50 years ago? 30

Change in Demand Is caused by the SEASONS, which affect our choices for goods and services (NOT in the text book) EXAMPLE: What is your demand for ice cream in July? In January? 31

DETERMINANTS OF CHANGE IN DEMAND Taste and Preference Income Number of Consumers Price of Related Goods Price Expectations Seasonal 32

CHANGE IN QUANTITY DEMANDED OCCURS ONLY WHEN THERE IS AN IMMEDIATE CHANGE IN THE PRICE OF THE G/S YOU ARE BUYING 33

Change in QD vs. Change in D 1.Beef prices fall; consumers buy more. 2.Millions of illegal immigrants swell U.S. population. 3.Scientists expect chicken virus to affect 30% of U.S. farms. 4.Buy one, get one free sale on sweaters at the GAP 5.America swears off bread and pasta due to Atkins Diet 6.You lose your job. 7.Compact disks replaced by i-Tunes 34

Diminishing Marginal Utility How useful is something? First piece of pizza? 5 th piece of pizza? Working with 1 other person….2…..5??? 35