Transcript Simple Concepts of Demand - Beavercreek City Schools

Simple Concepts of
Demand
 Demand: amount of a good or
service people are willing and
able to buy at a given price and
during a certain time period
aw of
emand
 Law of demand: an increase in
price will bring a decrease in
quantity demanded, while a
decrease in price will cause an
increase in quantity demanded
 It all comes down to common
sense
 If DVDs go from an average of
$12 per unit to $24 per unit, the
quantity demanded for DVDs will
inevitably go down, other things
being equal
 If there is a big sale on DVDs,
and they drop in price to $8
apiece, the quantity demanded
would be much greater
 It would show through sales
figures
 A change in price will bring a
change in quantity demanded
 Relationship between price and
quantity
 Price: $250 Quantity: 0
 $230
1000
 $210
2000
 $190
3000
 $170
4000
 $150
5000
 $130
6000
 As figures in Price go up, figures
in Quantity go down
 You can graph information and
discover the nature of the
demand of a certain product
 Question: In usual
circumstances, your school sells
3000 tickets to its football games
at $5 each. Fill out the chart for
what you believe the quantity
demanded would be as the ticket
prices rose or fell
 Price in $
3
4
5
6
Amount Sold
_______
_______
3000
_______
Change in Price Affect
Quantity Demanded
 Think of a rubber band
 The more elastic it is, the more it
can stretch
 If a product changes its price, we
expect there will be a change in
the quantity demanded
 If a product changes its price, we
expect there will be a change in
the quantity demanded
 The degree of that change is a
product’s elasticity
 If prices changes only a little, the
quantity demanded changes a
whole lot
 Product would have an elastic
demand
 This is because people will make
the decision not to buy the
product if it does not fit in their
budgets
 On the other hand, there are
products that are necessary to
our survival- we call these
necessities
 If you have a pacemaker and had
to replace the battery every so
often, a slight jump in price would
not dissuade you from buying one
 Paying a lot for a battery is better
than an massive heart attack any
day
 No matter what happens to
price, the quantity demanded will
remain rather constant
 When price increases or
decreases, quantity hardly
changes
 This would be price inelastic
 How inelastic the demand for a
certain product is depends
greatly upon how much people
need or want the product
 Utility is the usefulness or
satisfaction that people get from
a good or service
 Coffee in the morning might
have a very low utility for you
while the thought of a donut gets
you giddy
 Therefore, donuts would have
more utility
 One would expect you would
have a constant desire for
donuts- this is not the case
 Imagine the feeling you get when
you eat that first one- it’s your
favorite- glazed, with a jelly filling
 The first one is magic going
down, but as you eat the second
one, you find that it is not as
satisfying.
 Subsequently, each one that you
gorge loses its appeal more and
more
 This is known as diminishing
marginal utility
 Utility you get from pastry to
pastry will decrease with each
one you eat
 When you venture out on your
own into the “real world,” what
do you suppose you will eat?
 Many college students who live
on a shoestring budget eat
generic goods and inexpensive
foods like mac and cheese
 They dream of a day when their
budgets no longer constrain their
diets
 Products one buys less of when
income rises are called inferior
 Income effect on demand also
has a flip side
 As people make more money,
there are some products they
tend to buy more often- these
are called normal goods
 Most students don’t have money
for luxurious items like steak and
shrimp- but once they graduate
and begin collecting a paycheck,
their budgets may permit it
 List 5 products that have elastic
demands and list 5 products that
have inelastic demands
Demand Curves Move!
 Over a period of time, the simple
demand curves may shift
 In other words, it is possible for
sales of DVDs to increase while
remaining at a set price of $12
apiece
 Maybe the actor/actress is more
popular, maybe the average
movie buyer has more money to
spend
 Perhaps the consumers will
begin to prefer another medium
 We call these factors that
change the quantity demanded
without a change in price the
determinants of demand
 There are five determinants of
demand
 Consumer preferences- in
1987, New Kids on the Block
sold tons of merchandise.
Tastes have changed in the last
decade or so, they sell next to
nothing outside of garage sales
any more
 Market Size: As baby boomers
start to reach golden years, the
demand for Depends
Undergarments will go up- prices
can remain the same, but with
more senior citizens, the quantity
demanded will increase
 Income: If the average income
of the average family goes down,
then we can expect sales in the
school bookstore to drop
 Students will simply not have the
money to spend on sweatshirts
and diskettes
 Prices of related goods- if the
price of Skippy goes up, people
will simply buy more Peter Pan
or Jif. We call products easily
replaced with others substitutes
 On the other hand, if the price of
all peanut butter goes up by five
times, people will buy less
 If that happens, Smuckers will no
doubt experience a sharp
decrease in sales
 Peanut butter and jelly are often
sold in conjunction with other
another- we call them
complements
 Consumer Security: most
adults have a certain amount of
anxiety about the future
 When people feel good about
the future, they tend to spend
money
 When they feel that they might
lose their jobs or that a
depression might be coming
soon, they will not buy as much
 This would decrease the amount
of sales a store would have while
they never adjusted their price
 Question: Considering school
cafeteria chicken patties, for
each of the five determinants,
state one instance for each of
the five determinants in which
demand would increase or
decrease