1. Factors Affecting Demand
4.2

2. McDonald’s Makeover
Why would McDonald’s go to the trouble AND expense of redesigning its restaurant?

3. McDonald’s Makeover
The company recognizes that the consumer demand is changing.
Which means the company has to change too
Or What?

4. McDonald’s Makeover
Risk losing business to competitors that meets customer demands
Such changes in demand have an effect on both the demand schedule AND the demand curve
When it comes to demand – there are two types of changes
1. Price Changes while all other factors are the same OR
2. Other factors change while the price stays the same
In the case of McDonald’s what are some of these “other factors?”

5. I. Change in the Quantity Demanded
The change in the quantity of demand shows a change in the amount of the product purchased when there is a change in price.
Notice what happens to the quantity when $P goes up/down

6. Income Effect
Means that as prices drop, consumers are left with extra real income. Vice Versa.
How do people feel when the $P goes up? A B

7. 1. If the price goes from $20 to 12.50, how much money am I saving?
2. How might that make me feel?
3. What might I do with the extra savings?
4. Might this savings account for movement along the demand curve?
5. What happens in the opposite scenario?
6. Are there any real world examples you can think of?

8. Substitution Effect
Means that price can cause customers to substitute one product with another similar, but cheaper, item.
Examples
Bargain brand for name brand.
Or dollar, second-run matinee instead of weekend opening for film.
Even might include hamburger instead of steak (think homecoming for those of you on a tight budget – you wanted the steak or lobster, but you probably ordered a burger, the chicken or perch).

9. Both Income Effect and Substitution Effect affects movement along the demand curve.
The change in quantity demanded can either be an increase or decrease
BUT the demand curve itself does not shift

10. II. Changes in Demand

11. Changes in Demand
A change in demand is when people buy different amounts of a product at the same prices.
As a result the entire demand curve shifts to the right to show an increase in demand
OR to the left to show a decrease to in demand
Thus creating an entirely new demand curve

12. Causes for a Change in Demand 1. Income
A change in demand can be caused by changes in the following:
Income.
If you get a raise you can afford more.
If you lose your job, you can afford less.

13. Tastes
In / Out of style srv/artsandliving/features/2009/holiday-guide/the-list- 2010/index.html
review/the-list.html
Successful advertising.
Bad PR hit (Milli Vanilli and now Brittney Spears in Australia – lip syncing)
Product becomes obsolete (Sony’s PlayStation lost customers to Xbox).

14. 2. Substitutes A price change in a related product (substitutes)
Coke/Pepsi; Butter/Margarine; Burger King/McDonalds – those are substitutes.
The demand for a product tends to increase if the price of its substitute goes up.
The demand for a product tends to decrease if the price of its substitute goes down.

15. 3. Complements A price change in a related product (complements)
PS2s/Games; hot dogs/buns; DVDs/DVD players; etc.
The use of one increases the use of the other.
When price of one decreases, consumers buy more of both.
When price of one increases, consumers buy less of both.

16. 4. Consumer Expectations
Always deals with the way people think about the future.
Examples:
Stocking up before a big storm/hurricane.
Choosing not to buy a product that may soon become obsolete/improved upon:
Waiting for PS3 instead of a cheaper PS2
Waiting for 3D TV instead of buying plasma or LCD TV

17. 5. Number of Consumers More buyers, more total demand.
Less buyers, less total demand.