Transcript Notes on Demand

Law of Demand
Demand Schedule
DemandThe amount of a particular good or
service consumers want to buy
Law of demandas the price of a good increases
the amount demanded will decease
and as price decreases then
demand will increase
• Price and amount demanded move
in opposite directions
Price
Quantity
$50
0
$40
1
$30
1
$20
2
$10
3
$5
5
Demand Curve
P
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QUANTITY
Diminishing Utility
-the law of demand says that a lower
price will increase demand but this
is limited
-diminishing utility
-the amount of satisfaction or
usefulness of a product decreases
as more and more are consumed.
• You do not want any more no
matter how cheap it gets
-Ex.—You can only enjoy so many
soft drinks before you can’t drink
anymore no matter the price you
are paying
Elasticity
-Elasticity
-Is the degree to which a change
in price affects the demand for
the product
-Elastic Demand - expensive and
luxurious items
Elastic Demand
P
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E
-a change in the price does affect
the quantity demanded
QUANTITY
Inelastic Demand
• When purchase can be postponed
-Inelastic demand
-change in the price does NOT
affect the quantity demanded
• Necessities, few substitutes can
be found
P
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QUANTITY
Changes in Demand
Changes in demand can come from 6 factors: income changes, changes in
the number of consumers, consumer expectations, consumer tastes, and
changes in complements and substitutes
DECREASE in Demand
P
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E
INCREASE in Demand
P
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QUANTITY
QUANTITY
Income Level Changes
-The demand of many consumers is
based on their income level or
purchasing power
-A change in either direction to a
person’s purchasing power will change
their demand for goods and services
• More income = more money = more
willing to spend money
-personal income
• How much money a person makes
before taxes
-disposable income
• How much money a person has after
taxes are taken
Change in Consumers
-The number of possible consumers
in an area affects demand
-Faster growth areas may face
higher levels of demand
• More consumers = more demand
• Causes higher prices
-Areas of the country who are
losing population will face lower
demand for goods
• Less consumers = less demand
• Causes lower prices
• Birthrate, migration, immigration
Consumer Expectations
-Many consumers plan when making
economic choices and their
predictions for the future change
their demand
• Planning for marriage, children,
college, etc.
-a period of high unemployment or
economic boom can greatly
change the demand for certain
goods
• Do not want to waste money,
cannot wait to spend money
Consumer Tastes
-Because consumers have many choices
of where to spend their money, the
popularity of items will change
demand
• People want/willing to pay for what
is popular
-Advertisers spend billions every year
to shape the “tastes” of consumers
• Make people want product
• Holiday seasons
-Some items become high demand
items for a short while and then
very little demand
• “Fads”
Substitute Goods
-substitute goods are goods that can
be used in place of another
product
ex.—chicken or beef
Chicken and beef are substitute
goods, meaning that they can easily
be used in the place of one another.
If the price for chicken increases,
more people will want to buy beef, so
the demand for beef will also
increase.
If the price for chicken decreases,
more people will want to buy
chicken, so the demand for beef will
also decrease.
-if a good experiences a price
change then the substitute good
will face a demand change
• Price up = demand up
ex—chicken price increases,
demand for beef increases
Complementary Goods
-complementary goods are goods
that work with another product
ex-toothbrush and toothpaste, hot
dogs and hot dog buns, etc.
-a change in the demand for one
will many times affect the
demand for the other as well
• Price up = demand down
• For example: If your parents buy
you an Xbox for your birthday,
they will probably buy a game to go
along with the Xbox.
DVDs and DVD players are
complementary goods, meaning that
they work with another product.
If the price of DVDs increases, less
people will want to buy DVDs and
DVD players, so the demand for DVD
players decrease.
If the price for DVDs decreases, more
people will want to buy DVDs and
DVD players, so the demand for DVD
players will increase.