Transcript Intro-to-demand

Demand
1.
Think of 1 product or service that you bought
recently
2.
What made you purchase it?
3.
How much did you pay for it?
4.
If the price doubled would you still have bought it?
5.
If the price halved, what would you have done?
The demand curve
A graph showing how much of a good or service
will be bought by consumers at any given price
Price
If price changes then demand will be
shown by a MOVEMENT ALONG the
demand curve
Price
The Law of Demand and the
Demand Curve
100
90
P2
80
70
A contraction of
demand
P1
Price £
60
50
40
30
20
Demand (D)
10
0
0
20
40
60
80
100
120
140
Quantity (000 units per month)
Quantity Demanded (Qd)
Price
The Law of Demand and the
Demand Curve
100
P2
90
80
P1
70
Price £
60
An expansion of demand
50
40
P3
30
20
Demand (D)
10
0
0
20
40
60
80
100
Quantity (000 units per month)
120
140
Quantity Demanded (Qd)
Movements in demand
In the ‘Individual demand 1’ column of your table, write down how many video
games you would buy each year at the different price levels.
Once you have done this, find out what everyone else in your class bought at the
different prices and fill in the ‘Market demand 1’ column of your table.
Price of
video game
£10
£20
Market demand 1
Task: Using the market demand data,
plot the demand curve for video games
with price on the y-axis and quantity on
the x-axis. Label it D1.
£30
£40
£50
£60
7
Ceteris Paribus
‘Other things being equal’
We are looking at a change in 1 variable, in
this case price, whilst other influences
are constant such as income
A shift in the demand
curve
Shifts of demand
As the last exercise demonstrated, price clearly affects demand for a product.
There are many non-price factors that also affect demand. Suppose your income
has doubled since you filled in the table. Write down how many video games you
will buy at each price now you are wealthier in the ‘Individual demand 2’ column.
Then fill in the ‘Market demand 2’ column.
Price of
video game
£10
£20
£30
£40
£50
£60
Market demand
1
Market demand 2
Task: Plot the second
demand curve on the
same diagram as D1.
Label this D2.
Extension: Can you
think of any other
factors that could
cause you to demand
more video games
when the price
remains unchanged?
10
Shifts in the demand curve
• Some factors will cause the demand
curve to MOVE or SHIFT
• What could these be?
1. Changes in the price of substitute goods
2. Changes in the price of complimentary goods
3. Changes in real incomes
4. Changes in taste
Causes of an outward shift
in demand
• A rise in the real incomes of consumers
• An increase in the price of a substitute good (i.e. a
competing product)
• A change in consumers’ preferences towards the good
• An increase in the size of the total population
• A fall in interest rates (e.g. if the product is often
bought using loan finance)
• A rise in consumer confidence (important for “big
ticket” items of spending)
• Social changes which affect total demand for a
product
Shifts in Demand
Decrease in
Demand
Increase in
Demand
P1
D1
D3
Q3
Q1
Q2
D2
Quantity
Demanded
Change in the price of substitute
goods – Tea and coffee
What do you think will happen to the
demand for coffee if the price of tea
goes up?
Change in the price of
complimentary goods – Tea and milk
What do you think will happen to the
demand for tea if the price of milk goes
up?
The Factors Affecting the
Demand for New Cars
The Price of New
Cars
Consumer
Confidence
Interest Rates
Relative costs of
travelling on public
transport
Relative prices of
second-hand
vehicles
Cost of fuel
Road Charges /
Tax
Availability of
Credit
Costs of car
insurance and
servicing etc
Worksheet
A shift in demand
(Increase in demand)
to
the
right
A rise in the price of substitutes
A shift in demand
(Decrease in demand)
to
the
A fall in consumer income
A fall in the price of substitutes
A negative change in tastes and fashion
A positive change in tastes and fashion
A rise in the price of complements
A fall in the price of complements
An increase in consumer income
lef
Draw a diagram to illustrate what would happen under the following
circumstances. State whether you think the goods are complements or
substitutes or whether there is another reason for the effect on demand
1.
2.
3.
4.
5.
6.
7.
8.
The effect for demand for petrol following an increase in the
price of cars.
The effect on demand for public transport following an
increase in the price of petrol.
The demand for Ipods following an increase in the price of
downloads
The effect on demand of playstation 3s if the price falls
The effect on demand for holidays if income increases
The effect on demand for umbrellas during a rainy spell
The demand for Big Macs if the price of Whoppers rises
Demand for foreign holidays if airport tax rises
The law of diminishing
marginal utility
Utility is a measure of the satisfaction that we get
from purchasing and consuming a good or service
•Total utility: The total satisfaction from a given level
of consumption
•Marginal utility: The change in satisfaction from
consuming an extra unit
Standard economic theory believes in the idea of diminishing returns i.e.
the marginal utility of extra units declines as more is consumed