Consumers and Demand

The Law of Demand Demand: The desire to own something and the ability to pay for it. The Law of Demand: Consumers buy more of a good or service when its price decreases and less when its price increases. It’s all about getting the most for your buck (e.g. the auction market)auction

The Demand Schedule PriceQuantity Demanded

The Demand Curve

Shifts in Demand What causes a shift?  Income Normal Goods (Income increases → Demand increases) Inferior Goods (Income increases → Demand decreases)  Consumer Expectations (e.g. sales)  Population (e.g. baby boomers)  Consumer Tastes and Advertising

Consumer Tastes and Advertising Food Fashion Entertainment Personal Health Toys Clothing

Shifts in Demand (Cont’d) As consumers earn more money, they are able to spend more. Income effect: The change in consumption resulting from a change in income.

Shifts in Demand (Cont’d) Goods used in place of one another (substitute products – e.g. sugar and Splenda). Two goods that are brought and used together (complementary products – e.g. hot dogs and buns).

Elasticity of Demand The degree to which changes in price cause changes in quantity demanded (Elastic vs. Inelastic). Two Reasons for Elasticity of Demand:  The relationship between income and cost of the product (Car vs. Salt)  Whether or not a substitute is available (Butter vs. Margarine)