Transcript DEMAND
DEMAND DEFINITION A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. DEMAND SCHEDULE A Demand Schedule shows the prices and related quantity demanded for a product. DEMAND CURVE A Demand Curve shows the information from the demand schedule in the form of a graph. The Demand Schedule and the Demand Curve are two different ways to show the same information. LAW OF DEMAND The law states that “all else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls.” There is an INVERSE relationship between price and quantity demanded on a demand curve or demand schedule. REASONS WHY THERE IS AN INVERSE RELATIONSHIP BETWEEN P and QD 1. Common Sense – price is a great determining factor in the purchasing decisions of consumers. 2. Substitution Effect – at a lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive. The product whose price has fallen is not a “better deal” relative to other products. REASONS WHY THERE IS AN INVERSE RELATIONSHIP BETWEEN P and QD 3. Diminishing Marginal Utility – because successive units of a particular product yield less and less marginal utility, consumers will buy additional units only if the price of those units is progressively reduced. 4. Income Effect – a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to purchase more of the product than before. MARKET DEMAND is demonstrated by adding the quantities demanded by all consumers at each of the various possible prices. THE DETERMINANTS OF DEMAND are the factors, other than price, that affect purchases. • 1. Change in Buyer Tastes • The popularity of big cars increases the demand for oil and gasoline THE DETERMINANTS OF DEMAND are the factors, other than price, that affect purchases. 2. Change in Number of Buyers in the Market Example: An increase in the birthrate increases the demand for housing Change in Number of Buyers in the Market Example: A rare or unique good that is desirable. THE DETERMINANTS OF DEMAND are the factors, other than price, that affect purchases. 3. Change in Income Example: A rise in income increases the demand for goods normal such as restaurant meals, sports tickets, and necklaces while reducing the demand for Inferior goods such as cabbage, turnips, and inexpensive wine. THE DETERMINANTS OF DEMAND are the factors, other than price, that affect purchases. 4. Change in the Prices of Related Goods Example: A reduction in airfares reduces the demand for bus transportation (substitute goods); a decline in the price of golf clubs increases the demand for golf balls (complementary goods) THE DETERMINANTS OF DEMAND are the factors, other than price, that affect purchases. 5. Change in Consumer Expectations Example: Inclement weather in South America creates an expectation of higher future prices of coffee beans, thereby increasing today’s demand for coffee beans. CHANGES IN DEMAND Any changes in the Determinants of Demand will result in a in a new Demand Curve. Changes in things other than the price of the good or service will lead to the need for a new demand curve to be drawn. CHANGES IN QUANTITY DEMANDED It is a movement from one point to another point – from one price-quantity combination to another – on a fixed demand schedule or demand curve. PRICE IS THE DETERMINANT that results in the movement along a demand curve.