Download DEMAND, SUPPLY, PRICES

WHAT IS DEMAND?
Demand: 1)The desire to own
something AND 2) the ability to pay for
it
When we talk about demand, we are
referring to the activities of the
consumer!

THE LAW OF DEMAND

When a good’s price is
higher, consumers will buy
less of it and vice versa
DEMAND SCHEDULES
Demand Schedule: a table that lists the
quantity of a good a person will buy at each
different price.
The quantity of a good a
person will buy at each
different price is the

quantity demanded.
DEMAND CURVES

Demand Curve: a graphic representation of the
information presented on a demand schedule

Vertical Axis = price

Horizontal Axis = quantity
demanded
* Market demand curve/schedule:
shows quantities demanded by all
consumers in a market.
DEMAND CURVES
Two characteristics of a demand curve
1.
Only relationship between price and
quantity demanded is shown
2.
Curve always slopes downward
* As the law of demand suggests it will!!
CHANGES IN QUANTITY
DEMANDED


A demand curve is accurate as long as
price is the only thing that changes and
all else is held constant (ceteris paribus)
When only price changes, we move
along the curve and there is a change
in the quantity demanded
QUANTITY DEMANDED VS.
DEMAND


Quantity demanded refers to a single
price and is represented by a single
point on the demand curve
Demand refers to
all prices and is
represented by the
entire curve
SHIFTS IN THE DEMAND
CURVE
In the real world, many factors besides price
can influence consumers.
 When other factors change, the entire curve
shifts and there is a change in demand
 If consumers buy more at every price,
demand increases (shifts to the right)
 If consumers buy less at every price, demand
decreases (shifts to the left)
FACTORS (DETERMINANTS)
CAUSING A SHIFT IN DEMAND
#1 Income
 If the average income for a market increases,
demand will increase and vice versa
We can use newspaper headlines to provide us
with examples: (Product = Skippy Peanut
Butter)
“Recession over, more
people going back to work
as unemployment rate drops”
FACTORS CAUSING A SHIFT
IN DEMAND
#2 Consumer Expectations
 If consumers expect the price of a good
to rise in the near future, their current
demand will increase and vice versa
Example (Product = Snowboards, Month
= Dec.): “Snowboard Clearance Sale
After New Year!”
FACTORS CAUSING A SHIFT
IN DEMAND
#3 Population
 If a market’s
population increases, demand will
increase and vice versa
Example: “Thousands Leaving State Each
Week Due To High Home Costs”
FACTORS CAUSING A SHIFT
IN DEMAND
#4 Consumer Tastes/Advertising
 If consumers suddenly desire a good
due to shifting tastes, demand will
increase for that good and vice versa
Example (Product = Skippy
Peanut Butter): “Skippy
Peanut Butter Recalled Due
To Salmonella Scare!”
FACTORS CAUSING A SHIFT
IN DEMAND
#5 Price of Complementary Goods
 If goods A and B are usually bought
together and the price of good A rises,
demand for good B will decrease and
vice versa
Example (Product = salsa):
“Price of Tortilla Chips
Going Through The Roof!
FACTORS CAUSING A SHIFT
IN DEMAND
#6 Price of Substitute
Goods
 If the price of Good A, which Good B
can be substituted for, increases,
demand for Good B, will increase and
vice versa
Example (product = chicken): “Price of
Beef Has Increased 20% in Three
Months”
ACTIVITY 2: Shifts in Demand
Draw Graph From Board Here
Beef Consumption in May (start at curve C)
1. Price of Beef to Rise in June
Factor: _________________ Demand: _________ Curve: ____
* Move one curve at a time
** Base your curve on the previous answer (don’t go
back to C every time)
*** Use each factor once (one will be used twice)
ACTIVITY 2: Shifts in Demand
2. Millions of Immigrants Swell U.S. Population
3.
4.
5.
6.
7.
8.
Pork Prices Drop
Government Says Beef Is Bad For Your Health
BEEF PRICES FALL
Americans’ Monthly Income Drops Again
Shortage Increases Cost of Charcoal
Beef Industry Begins Campaign Promoting Beefy
Benefits
* There is one with no factor, and therefore, no change
in demand and you will stay at the same curve
(consult Activity 1, part C, #5 for a hint)!
ACTIVITY 2: Shifts in Demand
Sunscreen In June (begin at curve C again)
9. FDA Warns of Dangers of Skin Cancer as Summer
Returns
10. Beach Towels on Sale at Rite-On-Aid
11. Government Raises Income Taxes To Pay For Bank
Bailout
12. Vacationers Pour Into Region For Summer Fun
13. Hats and Long-Sleeve T-Shirts on Sale at Rite-OnAid
14. Cost of Sunscreen Decreases As Weather Turns Hot
15. Sunscreen To Go On Sale Over 4th of July Weekend
ELASTICITY
OF DEMAND



Elasticity of demand: a measure of how
consumers react to a change in price
If you generally keep buying a good when
price increases, and vice versa, your demand
is inelastic (limited reaction to price change)
If you buy much less of a good because of a
price increase, and vice versa, your demand
is elastic (strong reaction to price change)
ELASTICITY OF DEMAND


An elastic demand curve will be more
horizontal
An inelastic demand
curve will be more
vertical (totally
vertical is perfectly
inelastic)
FACTORS AFFECTING
ELASTICITY
#1 Availability of Substitutes
 Few substitutes = inelastic demand
Examples: concert tickets, medicines
 Many substitutes = elastic demand
Examples: apples, apple juice
FACTORS AFFECTING
ELASTICITY
#2 % of Budget
Spent on Good
 If large % of budget is spent on good =
elastic
Example: eating in restaurants
 If small % of budget is spent on good =
inelastic
Example: dry beans, comet cleanser
FACTORS AFFECTING
ELASTICITY
#3 Necessities versus
luxuries
 Necessities = inelastic
Example: milk, toilet paper
 Luxuries = elastic
Example: overseas
vacations, filet mignon
FACTORS AFFECTING
ELASTICITY
#4 Change Over Time
 Consumers sometimes need time to
adjust to price changes, so demand can
be inelastic in
short-term and
elastic in long-term
Example: gasoline
ELASTICITY AND TOTAL
REVENUE
Total revenue = price multiplied by
quantity demanded
 If a business raises its prices and total
revenue decreases, demand is elastic
 If a business raises its prices and total
revenue increases, demand is inelastic
* Elasticity of demand for a good varies
at every price level

PRODUCT: PEANUT BUTTER
1. Jelly price increases
2. Schools back in session; vacationers return
home ready to shop
3. Almond butter price decreases
4. Unemployment rate drops
5. Peanut butter price to drop
6. Peanut butter price drops
7. Someone influential stars in new peanut
butter commercial
PRODUCT: STRAWBERRY
JELLY
1. New Mall opens; over 1,000 jobs filled
2. Strawberry Fields Forever hits number 1 on charts
over 40 years later!
3. Strawberry jelly price increase expected soon
4. Grape jelly price decrease
5. Strawberry price increase
6. New census data shows migration out of state
7. Peanut butter price increase
PRODUCT: PEANUT BUTTER
* Start at C. Arrange the headlines so that the final
curve is C. Write the # of the headline,
increase/decrease/no change, and the new curve for
each.
1. Jelly price increases
2. Schools back in session; vacationers return home
3. Almond butter price decreases
4. Unemployment rate drops
5. Peanut butter price to drop
6. Peanut butter price drops
7. Psy stars in new peanut butter commercial