1. Demand

2. Demand analysis - intuition
Marginal Cost/Marginal Benefit analysis of consumers
If Marginal Benefit > Marginal Cost, buy it
If Marginal Benefit < Marginal Cost, don’t buy it
Marginal Benefit is reflected by what consumer is willing to pay. Marginal Cost is price of item.

3. Demand for Adam Humphrey’s Visa Service (based on individual’s willingness to pay)
Depends on,
Price of Service
Individual’s Income
Price Associated with Doing it at Burger King
How much does the person really want to go to China or how big a hassle is it to come back.
Number of Individuals going to Chinese Consulate for visa.

4. Demand for Adam Humphrey’s Visa Service

5. Market Demand for Adam Humphrey’s Visa Service
Obtained by summing all individual demands.
Depends on,
All factors that affect individuals’ demands (price of service, income, price of related goods, tastes/preferences, expectation of future prices, etc.)
Number of Individuals (population)

6. Individuals Can Demand Multiple Units

7. Example of Change in Demand due to Increase in Income
Normal Good
At every price people buy more so demand increases -shifts to right.
Examples:
Adam Humphrey’s Service
i phones
Lego Robotics
Shrimp
Yachts
Red Haven Restaurant D1

8. Example of Change in Demand due to Increase in Income
Inferior Good
At every price people buy less so demand decreases
-shifts to left.
Examples:
Generic Diapers
Bologna
Canned Beans
Ford Fiesta
Bus tickets D1

9. Change in demand due to change in the price of a related good
Substitutes
Two goods that satisfy similar needs or desires
Examples:
Adam Humphrey’s Service and Burger King’s Internet Café
Chicken Breasts and Chicken Wings
Diet Coke and Diet Pepsi

10. Change in demand due to change in the price of a Substitute
Price of a substitute good INCREASES -
Demand Increases
Shifts Right
Example:
Price of Diet Pepsi increases, Demand for Diet Coke increases Q P D1 D0

11. Change in demand due to change in the price of a Substitute
Price of a substitute good DECREASES -
Demand Decreases
Shifts Left
Example:
Price of Diet Pepsi decreases, Demand for Diet Coke decreases Q P D0 D1

12. Change in demand due to change in the price of a Substitute
Price of a substitute good INCREASES -
Demand Increases
Shifts Right
Example:
Price of Diet Pepsi increases, Demand for Diet Coke increases Q P D1 D0

13. Change in demand due to change in the price of a related good:
Complements
Two goods that are used jointly in consumption.
Examples:
Adam Humphrey’s Service and Airfare to China
Hardware and Software
Gasoline and GMC Yukons

14. Change in demand due to change in the price of a Complement
Price of a complementary good INCREASES -
Demand Decreases
Shifts Left
Example:
Price of Hardware increases, Demand for Software decreases Q P D0 D1

15. Change in demand due to change in the price of a Complement
Price of a complementary good DECREASES -
Demand Increases
Shifts Left
Example:
Price of Hardware decreases, Demand for Software increases Q P D1 D0

16. Demand = Willingness to Pay
Consumer Surplus
(The value consumers get from a good but do not have to pay for.)
P=35

17. What does the demand curve look like
What does the demand curve look like? Which demand below is for the more “price sensitive” product? P P D1 D2 Q Q
How “price sensitive” are consumers to: Salt Cigarettes Gasoline Diet Coke i Phones Chipotle on Grand River

18. What determines price sensitivity/ price elasticity?
Number of substitutes
The more substitutes or the closer the substitutes, the…
more elastic
Time interval
The longer time interval the…
Share of budget
The larger share of the budget the …
Ex. Diet Coke
Ex. Gasoline
Ex. Salt