Transcript The Marketplace: Demand

The
Marketplace:
Demand
What is the Marketplace?
A
market is any place that buyers and
sellers meet to voluntarily exchange
goods and/or services.
 Can be local, national, international, or
any combination.
Government’s role in a market
 For
a Market to work, the government
must provide:
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Law and Order – Enforcement of Property
rights, prevention of fraud, etc…
Standards of Measure and Money – people
must have standard measures, and an
established medium of exchange
What is Demand?
 Demand
is a schedule of prices and the
quantities buyers would be willing and
able to take from the market at those
prices.
 Law of Demand: Price and the quantity
demanded are inversely related. (As one
goes up, the other goes down.)
Demand Curve
Law of Demand
 What
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causes Demand to act this way?
Income Effect: with a fixed income you can
buy more at lower prices
Substitution Effect: As the price increases
you will seek to substitute other cheaper
goods for it.
Law of Diminishing Marginal Utility: As you
get more of a good, its utility decreases
with each additional unit . (One hot dog vs.
12 hot dogs)
Demand Determinants

Other than price, what determines Demand?
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Tastes and Preferences (Can’t sell pork rinds in
Jerusalem!)
Number of consumers
Incomes of consumers (can’t sell for more than people
have)
Substitute Goods ($4 Pepsi vs. $1.50 Coke)
Prices of complimentary goods ($4/gallon gas will affect
SUV sales)
Future Expectations (No one wants a Play-Station 2 when
they announce PS3 release)
If each of these remains constant, then Demand is
set by the price.
What causes a shift?
 Anytime
one of the
other factors, other
than price,
changes.
 Examples?
Price of a Soda
Demand Curve
Quantity of Sodas demanded