Transcript Demand - Cloudfront.net

Demand
Supply and Demand
Economics in a market
economy, at its most basic
& fundamental form is
SUPPLY & DEMAND.
Demand Perspective
Economics from
the perspective
of the consumer
DEMAND
Quantity of goods and
services that a
consumer is WILLING
and ABLE to purchase
at various prices
DEMAND – 3 Components
Able
Willing
Quantities Purchased at
Various Prices
Demand - Able
You must have enough
money to make the
purchase. If you can’t
afford something (a private
jet, for instance), you don’t
have an effective demand
for it.
DEMAND - Willing
You must be willing to make
the purchase. If you’re not
willing to spend your income
on it, you do not have an
effective demand for it.
DEMAND - Quantities
purchased at Various Prices
Qty Demanded
changes when price
changes
Demand Schedule
List of quantities
that would be
purchased at various
prices in table format
Demand
Schedule
Quantity Purchased
Price
Weekly
$20
21
$25
18
$30
15
$35
12
Demand Curve
Demand curve plots these
(from Demand Schedule)
points
Shows graphically the
relationship between price &
quantity demanded
Demand Curve
Vertical Axis - Prices
Horizontal Axis Quantity Demanded
Law of Demand
Inverse Relationship
Between Prices and
Quantity Demanded:
 Price
Increases -> Less Quantity
Demanded
 Price Decreases -> More Quantity
Demanded
Demand Curve (Inverse
Relationship)
Price
Demand
Quantity
Reasons Why The
Demand Line Is
Downward Sloping
Law Of Diminishing
Marginal Utility
Income Effect
Substitution Effect
Marginal Utility
Marginal – A small change
Utility = Usefulness or
Satisfaction
Marginal Utility is the amount of
satisfaction derived from 1
additional unit of a product
Law of Diminishing
Marginal Utility
As additional units of a
product are consumed
during a given period of time,
the additional satisfaction
derived from the good
decreases
Law of
Diminishing
Marginal Utility
Utility
Units of Goods
Proves Inverse Relationship
between Prices and Quantity
Demanded b/c…
At higher quantities,
people want it less and
so they’ll be less willing
to pay higher prices
Income Effect
The effect that
increasing or
decreasing prices have
on the purchasing
power of your income
Income Effect Cont’d
What’s the Purchasing Power of $5 (your
income) for the items on the dollar menu?
allows you to be able to purchase 5 items
What if the dollar menu became the half
dollar menu?
What if the dollar menu became the $2
menu?
Price changes affect the buying power of
your INCOME & thus your ability &
willingness to purchase products
Proves Inverse Relationship
between Prices & Quantity
Demanded b/c…
At Higher Prices,
people’s incomes will be
ABLE to buy LESS
Substitution Effect
Change in the
combination of goods
purchased as a result of
increasing or decreasing
relative prices
Substitution Effect
Cont’d
What might people do if the price
of movie theater tickets go up to
$15?
Get more Angel
Tickets
Buy more DVDs
Go see more Plays
or Stand-Up
Comedy Acts
Proves Inverse Relationship
between Prices & Quantity
Demanded b/c…
At higher prices,
people will substitute
that product with
cheaper substitutes
Homework: “Demand 3
Paragraphs”
Explain in your own words each in
a separate paragraph
 The
Income Effect
 Diminishing Marginal Utility
 The Substitution Effect
Each of the paragraphs must include
an ORIGINAL example that is
Determinants
of Demand
Change in
Quantity
Demanded
v.
Change in
Demand
Change in Quantity
Demanded
Caused by an increase or decrease in PRICE
Causes movement ALONG the demand line
Point A
Price
Point B
Quantity Demanded/Purchased
Change in Demand
Caused by 1 or more determinants of
demand
Causes a shift of the ENTIRE demand line
Price
Quantity Purchased/Demanded
Determinants of
Demand
Demand changes even if
there is no change in price
It will shift the entire
demand line
The
Determinants
Consumer income
Consumer attitude
Price of a
complimentary
product
Price of a substitute
Population
Weather
Expectations
Change in Income
Generally, an increase in income
leads to an increase in demand.
This is b/c consumers are more
willing and able to buy more
products
Can you think of any products
that would be an exception to
this statement?
Change in
Income Cont’d
Normal goods- Demand
increases as income
increases
Inferior goods- Demand
decreases as income
increases. Ex. Ground Meat
Change in Income
Cont’d
If someone who was unemployed
for 2 yrs finds employment at a
solid-paying job, what will happen
to his/her demand for normal
goods?
What will happen to his or her demand for
inferior goods like canned goods from a
generic producer?
Changing
Attitudes
Tastes and
Preferences
Trends
Fads
Changing Attitudes
Cont’d
List in your notes 5 examples
of trends and fads that have
come and gone or are
currently in but you expect
will end in the near future
Trends/Fads That Have
Come and Gone
Change in Price of a
Complementary
Good
Complementary
goods- Products that
are used together.
List 4 Examples
Complimentary Goods
Cont’d
If the price of peanut butter was to
increase, what would happen to the qty
demanded for peanut butter?
Qty Demanded for Peanut Butter will
DECREASE
What will happen to the demand for
Jelly?
Demand for Jelly will DECREASE
Complimentary Goods
Cont’d
If the price of Hot Dogs decreases, what
will happen to the qty demanded for Hot
Dogs?
Qty Demanded for Hot Dogs will INCREASE
What will happen to the demand for Hot Dog
Buns?
Demand for Hot Dog Buns will
Change in Price of a
Complimentary Good
Cont’d
If qty demanded changes
(up or down) for an
original good, than the
demand changes for the
complimentary good in
the SAME way
Complimentary Goods
Cont’d
In Price for an
Original Good
Qty Demanded
for the Original
Good
Demand for the
Complimentary
Good
The OPPOSITE of each is TRUE
Change in Price of
a Substitute
Substitute goodsProducts similar enough
they can replace the
other
List 4 Examples
Substitute Goods Cont’d
If the price of margarine goes
up, what will happen to the qty
demanded for margarine?
Qty demand for margarine will
DECREASE
What will happen to the demand for
butter?
The demand for butter will INCREASE
Changing Price of
Substitute
If qty demanded changes
(up or down) for an
original good, than the
demand changes for the
Substitute good in the
OPPOSITE way
Substitute Goods Cont’d
In Price for an
Original Good
Qty demanded
for the Original
Good
Demand for the
Substitute Good
The OPPOSITE of each is TRUE
Population Changes
Changes to population #s is a
determinant of demand. Why?
In your notes, explain why
population changes would have
an effect on demand. Use 1
example and explain it.
Weather
Weather is a determinant of
demand. Why? In your
notes, explain why weather
would have an effect on
demand for many products.
Use 1 example and explain
it.
Expectations For Future
Income
When consumers are
pessimistic about their future
incomes, the overall level of
demand for goods and
services in the economy
decreases. The opposite is
true.
Expectations Cont’d
Expectations for
Future Income
Expectations for
Future Income
=
=
Demand for goods
and services
Demand for goods
and services
In
Income
Times Past
Tastes & Preferences
Really Good
Related Goods
• Change in Price of Substitute Goods
White
• Change in Price of Complementary Goods
Weather
Beans
# of Buyers
Existed
Expectations
Demand Shifts
&
Elasticity of Demand
The Determinants of Demand
change demand at EVERY
price
This can be represented on a
Demand Graph
Graph: Increase in
Demand - Right
Using your first graph and
a pencil, draw a second
line that would represent
an INCREASE in demand.
Name this line D2
Graph: Decrease in
Demand - Left
Using your second graph
and a pencil, draw a second
line that would represent a
DECREASE in demand.
Name this line D2
Hold up the
appropriate shift
that represents the
effect of the
comeback of bellbottoms
Demand Curve:
Tastes and
Preferences
Price
D2
D1
Quantity
Hold up the
appropriate shift that
represents the
effects of a job
demotion due to a
business
consolidation
Decrease in Demand:
Income
Price
D2
D1
Quantity
The price of Pepsi goes
up.
Hold up the
appropriate shift that
represents effect on
Coca-Cola
Substitutable Goods:
Demand will go up for
Coke
Price
D1
D2
Quantity
Price Elasticity of Demand
Draw two graphs (both
on the same side of the
paper), one with a steep
slope and one with a
gradual slope
Elasticity
Elasticity means
RESPONSIVENESS
We measure
responsiveness
Price Elasticity of
Demand
Measurement of how
responsive the
quantity purchased
changes when there
is a change in price
Price Elasticity of
Demand Cont’d
Equation:
% change in quantity
demanded
% change in price
Demand Elastic
There are products where if
the price changes, the Qty
Demand will change
SIGNIFICANTLY.
These products are said to
have ELASTIC demand
Elastic Demand
Price is elastic if calculated
value of price elasticity
(equation) is greater than one
Products W/ Elastic
Demand
Non-necessity Movie Theater Tickets
There are readily available
Lunch
Meat
substitutes for the product
The product’s cost
represents a large portion of
Car
consumers’ income
Elastic
Demand
Price
D
Quantity
Inelastic Demand
Inelastic implies less sensitivity to
change in price
Price inelastic if calculated value of
price elasticity (equation) is less
than one
As the price of a good increases
the quantity demanded decreases
minimally
Products w/ Inelastic
Demand
A Necessity
Water
There are few or no readily available
Gasoline
substitutes for the product
The product’s cost represents a small
portion of consumers’ income Candy
Inelastic
Demand
Price
D
Quantity
Unitary Price
Elasticity (Unit
Elastic)
% change in the
quantity demanded
equals % change in
price
Total
Revenue
Total amount of money a
company receives from its sales
Total Revenue = price x quantity
sold
Quantity sold is dependent on
price
Relationship between
Price, Elasticity, Total
Revenue
Elastic Demand
Inelastic Demand
Decreasing Price
Increases Total
Revenue
Decreasing Price
Decreases Total
Revenue
Increasing Price
Decreases Total
Revenue
Increasing Price
Increases Total
Revenue