Transcript Law of Demand


Goal: Demand Summary Day

Warm-up: Demand Worksheet
ANNOUNCEMENTS
Collect Demand curves/schedules
 Quiz on demand on Friday
 Wednesday – mini project
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DEMAND
 Definition – The ability and willingness of people to buy specific
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quantities of a good or service at alternative prices in a given
time period
The price paid is a willing choice based upon perceived value to
the buyer
The objective of the buyer is to get as much value as he can for
the price paid
The Law of Demand states that generally people will buy more
of a good or service at lower prices and less at higher prices
Demand Curves generally slope downward to the right
LAW OF DEMAND
An inverse relationship exists between the price
of a good and the quantity demanded in a
given time period.
 Reasons:

 substitution
effect
 income effect
DEMAND SCHEDULE
DEMAND CURVE
CHANGE IN QUANTITY DEMANDED VS. CHANGE
IN DEMAND
Change in quantity demanded
Change in demand
Table 1 is the Demand
Schedule
Table 1
Figure 1 is the Graph of the
Demand Schedule
Figure 1
$500
Price
QD
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
100
150
57,000
100
67,000
450
50
The line is the
Demand Curve
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
D
70
3-16
HYPOTHETICAL DAILY DEMAND FOR COACH SEATS ON ROUND-TRIP
WEEKLY FLIGHTS BETWEEN DENVER AND CHICAGO
Table 1
$500
Price
QD
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
100
150
57,000
100
67,000
450
D
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
70
3-5
HYPOTHETICAL DAILY DEMAND FOR COACH SEATS ON ROUND-TRIP
WEEKLY FLIGHTS BETWEEN DENVER AND CHICAGO
Table 1
$500
Price
QD
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
100
150
57,000
100
67,000
450
D
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
70
3-7
HYPOTHETICAL DAILY DEMAND FOR COACH SEATS ON ROUND-TRIP
WEEKLY FLIGHTS BETWEEN DENVER AND CHICAGO
Table 1
$500
Price
QD
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
100
150
57,000
100
67,000
450
D
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
70
3-11
Quantity Demanded is a point
on the Demand Curve
Price and Quantity Demanded
are inversely related
Table 1
Figure 1
$500
Price
QD
$500
1,000
400
450
3,000
350
400
7,000
300
350
12,000
250
300
19,000
200
250
30,000
150
200
45,000
100
150
57,000
100
67,000
450
D
50
10
20 30 40 50 60
Quantity (in thousands)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
70
3-17
DETERMINANTS OF DEMAND
 Tastes and Preferences – The consumer’s desire for various
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goods and services
Income – The higher it is, the more we consume
Other Goods – Availability and Price
Expectations – for income; for price changes; for new products;
etc
Number of Buyers – The more; bigger demand; greater demand
TASTES AND PREFERENCES
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Effect of fads:
DEMAND AND THE # OF BUYERS
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An increase in the number of buyers results in
an increase in demand.
EXPECTATIONS
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A higher expected future price will increase current
demand.
A lower expected future price will decrease current
demand.
A higher expected future income will increase the
demand for all normal goods.
A lower expected future income will reduce the
demand for all normal goods.
COMPLEMENT PRODUCTS
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Complement Products are two or more products that are
generally consumed, or used, together
• Hot dogs and Mustard
• Peanut Butter and Jelly
If price of the primary good, say hot dogs, increases, the quantity demanded
(Qd) of that good will decrease, and
A decrease in the Qd for hot dogs will reduce the demand for mustard, and
ultimately the price of mustard will fall
So, the prices of complementary goods are said to be inversely related
SUBSTITUTE PRODUCTS
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Substitute Products are two or more products where one product may be
substituted for another
•
•
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Pepsi Cola or Coca Cola
Canned tuna fish or canned chicken
If the price of Pepsi increases, the quantity demanded (Qd) will decline, and
The decrease in (Qd) for Pepsi will lead to an increase in the demand for
Coca Cola which will lead to an increase in the price of Coca Cola,
So the prices of substitute products are said to be directly related
CHANGE IN THE PRICE OF A SUBSTITUTE GOOD
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Price of coffee rises:
INELASTIC – CHANGE IN PRICE ELASTIC – CHANGE IN PRICE
= NO CHANGE IN DEMAND
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Is it a necessity?
Are there a low numbers of
substitutes?
Is it relatively cheap?
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3 Yes?
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Example: pacemakers
=MAJOR ADJUSTMENT IN DEMAND
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Is it a necessity?
Are there a few number of
substitutes?
Is it expensive?
3 Nos?
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Examples: pizza
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ELASTICITY OF DEMAND