Transcript Demand - Personal.psu.edu

Demand
AG BM 102
Fish Market, Riga, Latvia
Talk is cheap.
Supply exceeds Demand.
Background
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What can you sell?
How much?
What price?
Related questions
– What happens over time?
– How about related products?
– What about income?
Demand - A schedule of the
quantities of product that
consumers will buy at various
prices
A Demand Schedule
• Demand is a price- quantity relationship
• Assumes other things, such as income,
are constant
• Is for a fixed period of time – per month,
per year, etc.
An Example - Beef
Price/lb.
Price/lb.
$5.00
Quantity
lb./cap.
50
$3.75
Quantity
lb./cap.
75
$4.75
55
$3.50
80
$4.50
60
$3.25
85
$4.25
65
$3.00
90
$4.00
70
$2.75
95
Beef Demand
5
$/lb.
4
3
2
40
50
60
70
80
lbs./capita
90
100
Points about Graphs
• Price is on the vertical axis
• Quantity is on the horizontal axis
• Since consumers see prices and choose
quantities, Q = f(P)
• This is opposite of usual graphs in algebra
where the dependent variable is on the
vertical axis – if you use excel or a
graphing calculator you need to make an
adjustment
Why do we have demand curve
sloping downward?
Downward Sloping Demand
• For ordinary goods, the additional unit is
worth less – if you have eaten six donuts,
how much is the seventh worth to you?
• For ordinary goods, a sale induces
consumers to buy more.
What happens when the prices
of a related good changes?
Two choices
• The consumption of beef goes down when
the price of chicken goes down –
substitute goods
• The consumption of beef goes up when
the price of hamburger buns goes down –
complementary goods (good consumed
together)
Price
FallsFalls
PriceChicken
of Chicken
What if income changes?
• Depends on good
• Ordinary goods – consumption rises
• Inferior Goods – consumption falls bologna
• Size of change depends on the
characteristics of the good
Income Falls
Tastes and Preferences
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Affect demand
Health news
New competing products
Changes in lifestyle
Bad Health News about beef
Some terms
• A change in demand – the line moves
because of some external factor – health
news
• A change in quantity demanded – a price
change induces the consumer to move to
a new point on the line
Change in Demand? or
Change in Quantity Demanded?
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Drought reduces crop size?
Russia puts embargo on our wheat
Consumers object to GMO soybeans
Price of substitute falls
Economy in slump - Income falls
New technology makes chickens lay more
eggs
Concluding Comments
• Demand is a key to understanding
economics
• It is the ultimate measure of what your
product is worth
• Is the price of milk too low?
• Not given how much is available –it is a
buyer’s market