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More Demand Diagrams! & changes in the conditions of demand Different
Demand Theory Different Goods Intro Diagram Causes Exceptions More Demand Diagrams! & changes in the conditions of demand
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Demand Theory Different Goods Intro Diagram Causes Exceptions Lesson Objectives To review factors that cause a MOVE and a SHIFT in Demand. To be able to apply the concepts of different types of goods to issues of demand.
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Demand Theory Different Goods Intro Diagram Causes Exceptions Basic Demand curve… The quantity of a product consumers are willing and able to buy at different prices in a specified time period Normally there is an inverse relationship between the price of good X and the quantity demanded of good X
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Movements along a demand curve
Demand Theory Different Goods Intro Diagram Causes Exceptions Movements along a demand curve
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The Demand Curve Price P2 P1 Demand Q2 Q1 Quantity Demanded
Demand Theory The Demand Curve Price P2 P1 A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. For normal goods, more of a product will be demanded as the market price falls. Demand Q2 Q1 Quantity Demanded
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A contraction of demand
Demand Theory A contraction of demand Price A contraction of demand due to a higher price P2 P1 At higher prices, consumers generally willing to purchase less than at lower prices Demand Q2 Q1 Quantity Demanded
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An expansion of demand due to a lower price
Demand Theory An expansion of demand Price An expansion of demand due to a lower price P1 At lower prices there is a financial incentive to demand more of a good or service P2 Demand Q1 Q2 Quantity Demanded
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Exam skills in drawing diagrams
Demand Theory Different Goods Intro Diagram Causes Exceptions Exam skills in drawing diagrams Do not draw too small or too big! Keep it neat! Always label axis with a 0, and top/bottom titles. MUST label curve(s) Draw on movement arrows (on the axis)
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The change in price or a change in demand?
causes a….. movement along the demand curve! Demand Theory Different Goods Intro Diagram Causes Exceptions What comes first? The change in price or a change in demand?
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Shifts in Demand Different Goods Intro Diagram Causes Exceptions
Demand Theory Different Goods Intro Diagram Causes Exceptions Shifts in Demand
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Different Goods Intro Diagram Causes Exceptions
Demand Theory Different Goods Intro Diagram Causes Exceptions Quantity Demanded D1 P1 Q1 Q2 Q3 D2 D3 Increase in Demand Decrease in Demand Price What can cause demand to increase or fall, despite the price remaining the same?
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Causes of an outward shift in demand
Demand Theory Different Goods Intro Diagram Causes Exceptions Causes of an outward shift in demand A rise in the real incomes of consumers An increase in the price of a substitute good (i.e. a competing product) A fall in the price of a complementary good A change in consumers’ preferences towards the good An increase in the size of the total population A fall in interest rates A rise in consumer confidence Social changes which affect total demand for a product
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Group work You will be given an image slide to work in groups of 3’s
Demand Theory Different Goods Intro Diagram Causes Exceptions Group work You will be given an image slide to work in groups of 3’s You need to be able to EXPLAIN the specific factors that would influence an increase in market demand for the good/service on your sheet! After 5 mins you will need to feedback your ideas to the group – ‘elect’ a spokesperson in your group!
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Individual work…. Using your whiteboard….
Demand Theory Different Goods Intro Diagram Causes Exceptions Individual work…. Using your whiteboard…. Sketch some demand curves for the following situations and think of how you would expect the demand curve to change….
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Demand Theory Different Goods Intro Diagram Causes Exceptions QUICK FIRE DRAWINGS… The demand for choc following campaign on the dangers of obesity The demand for oranges following a medical research linking a reduction in colds and eating/drinking oranges.
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Different types of goods
Demand Theory page 01 page 02 page 03 Different Goods Exceptions Different types of goods Normal Substitutes Complementary Inferior Ostentatious
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Substitutes Substitutes are goods in competitive demand
Demand Theory page 01 page 02 page 03 Different Goods Exceptions Substitutes Substitutes are goods in competitive demand They are replacements for another product For example, a rise in the price of Esso petrol (other factors held constant) should cause a substitution effect away from Esso towards Shell or other competing brands
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What could be a substitute product for: Esso petrol? BT phone line?
Demand Theory page 01 page 02 page 03 Different Goods Exceptions What could be a substitute product for: Esso petrol? BT phone line? Budget car rental? Fresh salmon? Beer? Nike trainers?
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Changes in price of Substitutes
Demand Theory Different Goods Intro Diagram Causes Exceptions page 01 page 02 page 03 Changes in price of Substitutes Price of Texaco petrol Price of Shell petrol P2 P1 P1 D2 Demand D1 Q2 Q1 Output (Q) Q1 Q2 Output (Q)
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Complements Complements are said to be in joint demand
Demand Theory page 01 page 02 page 03 Different Goods Exceptions Complements Complements are said to be in joint demand Examples include: fish and chips, DVD players and DVDs, iron ore and steel A rise in the price of a complement to Good X should cause a fall in the demand for X
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What are the complement goods to these items?
Demand Theory page 01 page 02 page 03 Different Goods Exceptions What are the complement goods to these items? A change in the demand for these goods will directly effect the demand for their complementary goods. To fish and…. DVD players Ipods Flights from London to New York A fall in price for digital camera The extent to which a change in the price of one good leads to a change in the demand for a complement is determined by the cross-price elasticity of demand.
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Demand Theory page 01 page 02 page 03 Different Goods Exceptions Inferior Goods For normal products, more is demanded as income rises, and less as income falls There are exceptions called inferior products They are often cheaper poorer quality substitutes for some other good With a higher income a consumer can switch from the cheaper substitute to preferred alternative As a result, less of the inferior product is demanded at higher levels of income
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Demand Theory page 01 page 02 page 03 Different Goods Exceptions Ostentatious Goods Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people! Jimmy Choo £460 Dolce & Gabbana £250
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Ostentatious Goods page 01 page 02 page 03 Different Goods Exceptions
Demand Theory page 01 page 02 page 03 Different Goods Exceptions Ostentatious Goods Olympic Gold medallist rewarded with Jimmy Choo shoes!
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Demand Theory Different Goods Intro Diagram Causes Exceptions Exceptions Some goods & services do not have an inverse relationship with price… Ostentatious goods – the lower the price, the target customers will not want the product, but the higher the price – the higher the demand! Speculative demand - potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit
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Demand Theory Different Goods Intro Diagram Causes Exceptions Exceptions Giffen Goods - special type of inferior good may exist, which disobeys the "law of demand". When the price of a Giffen Good decreases, the demand for that good decreases. This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope upward, indicating positive elasticity.
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On your whiteboard…. On one side write OUTWARD
Demand Theory Different Goods Intro Diagram Causes Exceptions On your whiteboard…. On one side write OUTWARD On the other write INWARD Then be prepared to decide what the effect of the following will have on demand.
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What if….. Substitute products’ price increase?
Demand Theory Different Goods Intro Diagram Causes Exceptions Inward or outward shift? What if….. Substitute products’ price increase? Incomes fall – what will be the effect on ‘normal’ goods? A product has a major advertising campaign? Science proves that regular mobile phone use damages memory! Price of newspaper increases…..? Careful… In your notes– draw a diagram to show the ‘impact’ on the demand schedule(s) for each of these situations
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Changes in price of Substitutes
Demand Theory Changes in price of Substitutes Price of Texaco petrol Price of Shell petrol P2 P1 P1 D2 Demand D1 Q2 Q1 Output (Q) Q1 Q2 Output (Q)
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Have I mentioned my fascination for shoes yet?
Demand Theory Different Goods Intro Diagram Causes Exceptions Have I mentioned my fascination for shoes yet? Homework… Research and find an three examples of a good/service… ‘normal’ goods inferior goods ostentatious goods Eg Shoes… Christian Lacroix Large bow shoe boots £365 Normal? Or cameras, bikes, cars, wine, restaurants…
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What factors are influencing market demand for smoothies?
Demand Theory What factors are influencing market demand for smoothies?
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What factors are influencing market demand for houses?
Demand Theory What factors are influencing market demand for houses?
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What factors are influencing market demand for second hand cars?
Demand Theory What factors are influencing market demand for second hand cars?
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What factors are influencing market demand for bread makers?
Demand Theory What factors are influencing market demand for bread makers?
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What factors are influencing market demand for holiday cottage in UK?
Demand Theory What factors are influencing market demand for holiday cottage in UK?
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What factors are influencing market demand for buses?
Demand Theory What factors are influencing market demand for buses?
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What factors are influencing market demand for wellingtons?
Demand Theory What factors are influencing market demand for wellingtons?
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What factors are influencing market demand for cinema experience?
Demand Theory What factors are influencing market demand for cinema experience?
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