Transcript The Demand curve - Business-TES

The Demand curve
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Define ‘Demand’
Diagrammatically show the law of
‘Demand’
Explain the determinants of ‘Demand’
Understand the difference between a ‘shift
in’ and a ‘movement along’ a demand
curve.
What is Demand?
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The amount that consumers are willing
and able to buy at a given price.
Draw two axis!
X= quantity
Y = price
Think!
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How will the amount that people wish to
buy change as the price changes.
Now, draw that relationship on the axis.
Label it Demand.
Price
Hopefully…
Demand
Quantity
The relationship
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Normally there is an inverse relationship
between the price of a good, and the
amount that consumers demand.
‘Normal goods’
Why is the Demand curve there?
And not
here?
Or here?
Demand
Factors that affect Demand
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Number of consumers
Consumer tastes and preferences
Consumer incomes
Interest rates
Price of compliments
Price of substitutes
Demand for new cars
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Relative price of second hand cars
Interest rates
Availability of credit
Price of petrol etc
Price of public transport
Taxes etc
Effective demand
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Desire to buy is backed up by the ability to
pay.
Latent Demand
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The consumer wants the good, but does
not have the financial clout to actually buy
Aston Martin cars: Big latent demand!
Derived Demand
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Often the demand for a product is
dependent upon the demand for another
product,
E.g. Bricks:
Inferior goods
Not all goods follow the law of demand.
These are called inferior goods.
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Giffen goods
Veblin goods
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Giffen goods
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Usually thought of as poor quality food
stuffs.
The price goes up, so they can’t afford the
other things they used to supplement it
with, so buy more of the basic thing
instead.
Rice
Veblin goods
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People like some things because they are
expensive. Often thought of as the ‘snob
effect.’
Complimentary demand
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Demand for two products is linked.
E.g. Mobile phones and network phone
calls.
Shifts in demand
What causes the demand curve to
shift?
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A change in any of those determinants of
demand, will lead to a new demand curve.
A change in price will lead to a movement
along the existing demand curve.
Price
Contractions and expansions
Contraction of
demand
Demand
Price
Contractions and expansions
Expansion of
demand
Demand
quantity