Transcript DEMAND

iPhone 6
Price
$600
$300
$100
Quantity
Milk
Price
$2.00
$4.00
$6.00
$8.00
$10.00
Quantity
The Big Bang Theory 5x05 - The Sword - YouTube
PRICE
A neutral source on information
Allows for change in the economy
It allows freedom of choice
Demand
 Demand is the desire to have some good or
service and the ability to pay for it.
 The law of demand states that when
the
PRICE of a good or service GOES DOWN,
consumers buy MORE, meaning demand
increases.
 If price goes UP, demand should
DECREASE.
Demand Curve
Price
Pt.
A
Price of Quantity
DVDs Demanded
$30
A
30
B
25
0
B
$25
1
C
$20
2
D
$15
3
E
$10
4
F
$5
5
C
20
D
15
E
10
F
5
0
1
2
3
4
5
Quantity
Movement on the Curve
 Change in quantity demanded is a change
in PRICE or QUANTIY.
 This will cause you to move along the
curve, up/down.
 We call these “movers”
Change in Quantity Demand
A
Price
B
C
D
E
F
Quantity
Demand Changes
 Change in demand meanwhile is a change
in the AMOUNT YOU BUY.
 This means the curve will shift to the left or
to the right.
 We call these “shifters”
There are six factors that influence this.
Change in Demand
A
A
Price
B
B
C
C
D
D
E
E
F
F
Quantity
6 Factors for
Change in
Demand
Substitutes
 Substitutes are goods/services
that can be used in place of
another good or service.
If the price of a substitute changes, people
may be more/less inclined to get the
original item.
 Examples
 Pepsi or Coca Cola
 Ordering Pizza or Chinese for dinner
Substitute’s price goes
up ie. Coke
Substitute’s price goes
down
P
P
Pepsi
Pepsi
Q
Q
Complements
 Complements are goods that
are used together, so that a rise
in demand in one good will
increase the demand for the
other good.
If a price change occurs for the complement,
it will affect the demand for the original item.
Complement’s price
goes up
Complement’s price
goes down
P
P
Cereal
Cereal
Q
Q
Income
 People’s ability to buy certain
goods is affected by their
income.
 If their income changes, then their ability to
buy certain goods will change.
Less money means the curve will shift left,
more money will shift the curve to the right.
.
P
Recession hits: Lower
Incomes
P
Economic Growth:
Higher Incomes
Dr. Pepper
Dr. Pepper
Q
Q
Consumer Tastes
 People’s tastes are constantly changing!
 Advertising influences
people’s tastes.
http://www.youtube.com/watch?v=R55e-uHQna0
Terms
 Normal Goods – goods consumers demand
more of when their income rises.
 Inferior Goods – goods that consumers
demand more of when their income falls.
Recession hits: Generic
brand goods
Economic Growth: Generic
brand goods
P
P
Tops
gummy
bears
Q
Tops
gummy
bears
Q
Consumer Expectations
 If you expect a product to go on
sale, you wait to buy that
product
 Examples
 Cars
 Gas
 Tickle-Me-Elmo
 Smart Phones
Consumers expect price
to rise
Consumers expect price
to fall
P
P
IPhone
IPhone
Q
Q
Market Size
 The size of the market is based
on the number of consumers.
 Example
 People leaving Buffalo has caused a smaller market
size.
 More people moving to Florida and Texas has created
larger market sizes in these states.
If people leave a region, the market size will
decrease meaning the curve will shift to the left and
vice versa.
Bigger Population
Smaller Population
P
P
Q
http://www.youtube.com/watch?v=8E0SoagJCx4
Q
Elasticity of Demand
 Elasticity of demand is how responsive
consumers are to price changes.
 Elastic demand – quantity demanded will
change greatly as price changes.
Elastic Demand
When demand is
elastic, prices will
not change much,
but quantity
demanded will
change.
Price
30
25
A
20
B
C
15
D
E
10
F
5
0
1
2
3
4
5
Quantity
Inelastic Demand
Inelastic demand
states that quantity
demanded will
change little as
price changes.
Price
A
30
B
25
C
20
D
15
E
10
F
5
0
10
20
30
40
50
Quantity
Are there good substitutes?
Yes = Elastic
No = Inelastic
What proportion of income does it use?
Large = Elastic
Small = Inelastic
Is it a necessity or a luxury?
Luxury = elastic
inelastic
Necessity =