Transcript The Concept of Demand

The Concept of Demand
Presentation copyright ©1999 by Barry Brownstein
Need vs. Demand
“The concept of needs encourages all or
nothing thinking”
 “Demand is a concept that relates amounts
people want to obtain to the sacrifices they
must make to obtain these amounts.”
 Law of demand- “there is a negative
relation between the amount of anything
people will want to purchase and the price
(sacrifice) they must pay to obtain it.”

Demand vs. Quantity
Demanded

Demand is a schedule- a series of prices and
series of quantities that people would want
to purchase at each of those prices, every
thing else held constant
Price
Quantity
Demanded
50 cents
125,000
40 cents
160,000
30 cents
175,000
Graphing Demand
Price
Quantity
What is Held Constant, When
Determining Demand?
Income
 Prices of Substitutes
 Prices of Complements
 Tastes
 Any other factor that influences demand
other than price

Shifting Demand
An increase in
demand
True or False
If price goes up, demand will fall and then
price will go down.
 A new report on the dangers of sugar will
reduce demand for sugar
 Falling coffee prices, will increase demand

How Prices Help To
Coordinate
When the price of a good changes,
individuals do not have to be told to change.
They find it is in their own best interest to
do so.
 A market system allows those closest to the
decision, those with the most information,
to respond to changes in prices.

Price Elasticity of demand

The percentage change in quantity
demanded divided by the percentage change
in price, all other factors held constant.
(absolute value)
%Change in Q
%Change In P
Thinking About Elasticity
A value greater than one is elastic
 A value less than one is inelastic
 Rank the following, the most elastic first:
– the demand for salt
– the demand for Morton’s salt
– the demand for Morton’s at Giant food

More on Elasticity
How does an increase in the choice of
brands impact elasticity?
 Explain this headline: “Natural Gas Prices
Surge and Producers Aren’t Happy At All”
 Explain why access charges on phone bills
do not induce many people to give up
telephones.
