Transcript demand - Pearland ISD

DEMAND
Chapter 4 Section 1
Understanding how Demand works!
DEMAND
 Objectives:
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Explain the Law of Demand.
Understand how the substitutes effect and the
income effect influence decisions.
Create a demand schedule for and
individual and market.
Interpret a demand graph using demand
schedules.
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 Different ways to answer the 3
economic questions.
 What
to produce?
 How much to produce?
 Who gets what?
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 United States…allocate most goods
through a market system.
 Interaction of buyers and sellers
determine the prices of goods as
well as the quantity that is
produced.
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 What is Demand????????
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 What is Demand?
 It is the desire to own something and
the ability to pay for it.
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 What is the Law of Demand??????
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 What is the Law of Demand?
 The Law of Demand says that when a
good’s price is lower, consumers will
buy more of it.
 When price is higher, consumers will
buy less of it.
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 Law of Demand is a result of 2 patterns
of behavior
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 Law of Demand is a result of 2
patterns of behavior
 Substitution
Effect
 Income Effect
 2 different ways consumers can change
their spending patterns
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 The Substitution Effect….
 When
consumers react to an
increase in a good’s price by
consuming less of that good
and more of other goods.
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 Example:
Pizza
 Substitutes
- - Tacos, Salads, etc
 This will cause a drop in the
amount of pizza demanded.
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 Substitution Effect can also apply to
a drop in prices.
 IF pizza prices drop, more pizza will be
bought than other substitutes
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 The Income Effect….
 The change in consumption resulting
from a change in real income.
 Example: When prices of movie tickets,
shoes, pizza increase… our limited
budget won’t buy as much as it used to.
DEMAND
 You feel like you have less money than
before.
 Difference between Substitution and
Income Effect is in Income Effect– you
cut back on your purchases without
substituting another product.
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 Economists measure consumption in
the amount of a good that is bought,
not the amount of money spent to
buy that good.
 You are spending more and consuming
less!
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 In a sense…. The income effect leads
to the law of demand!
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 Demand Schedule…
 A table that lists the quantity of a
good a person will buy at each
different price.
 It explains how the price of any item
affects the quantity demanded of that
item.
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 To have demand for a good….
 You must be willing and able to buy it at the
specified price.
 You may want a Hummer H3, but do not have
the means to pay for it or do not have the
desire to pay for it.
DEMAND
 Market Demand Schedule….
 Shows
the quantities demanded
at each price by ALL consumers
in the market.
 Demand Graph…..

is a graphic representation of a
demand schedule
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 Demand Graph….
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Vertical Axis
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Horizontal Axis
-
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Lowest possible price at the bottom and highest
possible price at the top.
Quantity Demanded with the lowest possible
quantity at the left and the highest possible
quantity at the right.
Demand Curve is always labeled with a D
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Demand Graph
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 The graph shows the relationship between
the price of this good and the quantity that a
person (or market) will purchase.
 Demand Curve is always downward
sloping to the RIGHT!
 As price decreases…the quantity demanded
increases.
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 Prices of Related Goods
 The
demand for one good can be
affected by a change in the
demand for another good.
 Two types
Complements
 Substitutes
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 Complements
 Two
goods that are bought and used
together.
 Example:
Camera and film
 Surfboard and Surf-wax
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 Substitutes:
 Are
goods used in place of one another.
 Example:
Skis and Snowboards
 Crayons and Markers
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 An Independent Good
 An
item that is neither a substitute nor a
complement.
 Examples:
For a Coffee Cup = it could be a Table
 For a Desk = it could be a Black Board
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DEMAND
 Complete the assignment below and turn in for a
grade.
 Using the 7 examples on the next slide….
 Give an example of….
 A.
a Substitute
 B. a Complement
 C. an Independent Good
Homework Assignment
Item
1. Toothpaste
Substitute
Complement
Independent
Good
DEMAND
 1.
 2.
 3.
 4.
 5.
 6.
 7.
Toothpaste
Computers
Pencil
Coffee
Dishwashing Soap
Chalk Board
Bicycle
Create a Demand Schedule using the following information. Make
sure you put the schedule in the correct order.
Widgets
$ 1.50
$ 3.50
$ 2.00
$ 5.00
$ 4.50
$ 3.00
$ 1.00
$ 2.50
$ .50
$ 6.00
$ 4.00
$ 5.50
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45
25
40
10
15
30
50
35
55
0
20
5
DEMAND
 I need a NEW car!!!!
 Why
would you need a new car?
DEMAND
 I need a NEW car!!!!
 Why

would you need a new car?
To get around, go from place to place, take your
friends somewhere.
 Are
there other ways of getting around
besides a car?
DEMAND
 I need a NEW car!!!!
 Why
would you need a new car?
 Are there other ways of getting around
besides a car?
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Bus, friends, parents’ car, parents give
you a ride, bike, walk, jog, run, etc
 SO..
You don’t need a new car… you
need a mode of transportation
DEMAND
 Fire safety requires that there be two
exits from each apartment unit.
 Why
do you need more than one exit?
DEMAND
 Fire safety requires that there be two
exits from each apartment unit.
 Why
do you need more than one exit?
If one is blocked
 What
other substitutes may be available
for a unit to pass inspection?
DEMAND
 Fire safety requires that there be two
exits from each apartment unit.
 Why
do you need more than one exit?
 What other substitutes may be available
for a unit to pass inspection?
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Sprinkler system, fire extinguishers, etc
DEMAND
 Fire safety requires that there be two
exits from each apartment unit.
a window or door on the 3rd story
balcony really an exit? What would be
the cost of using such an exit in an
emergency?
 What could be a substitute if one
considers the cost too high?
 Is
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Demand Assignment: Due Monday
1. Pick a product
2. Pick 10 different price levels
3. Pick 10 people to poll
4. Create an Individual Demand
Schedule for all 10 people
 5. Create a Market Demand Schedule
 6. Create a Market Demand Graph
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Label all parts: V-Axis, H-Axis, Title, and Demand Curve