1. Fundamentals of Demand

2. Demand
The law of demand explains consumer reaction to price increases and decreases.

3. Income effect- more wealth, buy more

4. The Demand Graph
At this livestock auction, the law of demand is on clear display: As the price goes up, the number of willing buyers goes down, until finally there is only one bidder left.

5. The Demand Schedule
Both individual and market demand schedules record how changing prices affect quantity demanded. In these schedules, how much pizza does the market demand at $3 a slice?

6. Types of Demand Curves Individual Demand Curves Market Demand Curves
How much you personally are willing to spend on various quantities of an item
Market Demand Curves
Shows various quantities demanded by everyone who is interested in purchasing a product
To make a market demand curve: add the quantity demanded of 2 or more curves and keep prices column the same

7. Market Demand Curves
Create a market demand schedule based on these individual demand schedules:
Person A’s Demand Schedule
Person B’s Demand Schedule
Price
Quantity Demanded
$50 3
$40 5
$30 6
$20 7
$10 9
Price
Quantity Demanded
$50 2
$40 3
$30 4
$20 5
$10 6

8. Market Demand Schedule
Price
Quantity Demanded
$50 5
$40 8
$30 10
$20 12
$10 15

9. The Demand Graph
These graphs use the data from the individual and market demand schedules to show demand graphically. How much pizza does Ashley demand at $5 a slice?

10. Shifts in Demand

11. Know the Difference… Change in Quantity Demanded Change in Demand
Movement ALONG a demand curve
Changes in how many products are demanded at each price
Change in Demand
Shift of entire demand curve
People are now willing to buy different amounts of products at the same prices

12.  Change in Quantity Demanded
Change in Demand 

13. Change in Demand Entire Demand Curve Shifts
People willing to buy different amounts of products at same prices
6 categories of factors which may cause change in demand

14. D2 P "Change in Taste" [Direct] QD3 QD1 QD2 A decrease in taste
for videos results in a
decrease in demand.
An increase in taste
for DVDs results in an
increase in demand. D2 D1 D3 P
QD3
QD1
QD2

15. Shifts in the Demand Curve
Consumer Income
As income increases the demand for a normal good will increase.
As income increases the demand for an inferior good will decrease.

16. The Impact of a Change in Income
Higher income decreases the demand for an inferior good
Higher income increases the demand for a normal good 16

17. Factors Affecting Demand
1. Consumer Tastes
Product becomes very popular  increases demand
Product looses popularity  decreases demand
Ex. Guitar Hero
2. Consumer Income
When you make more money you can buy __________ products  increases demand
If you get a pay cut, you can buy __________ products  decreases demand

18. The Non-Price Determinants of Demand
An increase in income is likely to increase demand for so-called normal goods. At the same time, demand for certain goods—such as used cars—may go down as income goes up.

19. Increase in # of consumers
Market Size (direct) (# of consumers)
Can increase/decrease from
economic decisions, advertising, and
government political decisions (China).
Ex: The large “baby boom” of
increased the demand for baby supplies.
An increase in life expectancy increased
demand for medical care, retirement
communities, and nursing homes.
Increase in # of consumers

20. Expectations of consumers
[about future price, availability, & income]
If the iPod-Touch is expected to
increase in price from $295 to $450. D1 D2 P
QD1
QD2
iPod-Touch

21. Factors Affecting Demand
3. Number of Consumers
More consumers willing to buy products  Increase demand
4. Change in Expectations
What people think will happen in the future
People may choose to wait on newer, better products or wait and see if price will go down  Decrease Demand

22. The Non-Price Determinants of Demand
Hispanic Americans are a growing demographic force in the U.S. How would you expect demand for goods intended to appeal to Hispanic Americans to change in the future?

23. Factors Affecting Demand
5. Substitutes
Products which can be used in place of others and are less expensive  increase demand
Products which are expensive and can be substituted  decrease demand
6. Complements
Related goods; use of one increases use of another
Ex. Increased popularity of X-box system  increased demand for X-box games

24. Prices of Related Goods
[Substitutes-Direct; Complements-Inverse] D1 D2 D D1 P1 D2 P P2 P
QD1
QD2
Complement
[Inverse]
Substitute
[Direct]
Gangsta Grills
Chrysler 300s
Toyotas
MV X PQ

25. even dogs are buying boats
Complements - Inverse
[Decrease in price of one; increase in the “D” for the other]
Boat Prices
Gasoline Demand P QD D1
They are so cheap that
even dogs are buying boats P1 P2
QD1 QD2
I’m making more money without dropping my prices. D2
No change
in price

26. [Increase in price of one; increase in “D” of the other]
Substitutes – Direct
[Increase in price of one; increase in “D” of the other]
Price of
iPod Video
Demand for
Microsoft’s Zune P P2 P1
QD2 QD1
QD QD D D1 D2
1977, Bill was
arrested for
running a stop
sign and driving
without a license.

27. The Non-Price Determinants of Demand
The influence of social media has exploded in the 2000s. What evidence can you find that advertisers expect the influence of social media to continue growing?