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DEMAND DEFINED
DEMAND SCHEDULE
P
$5
4
3
2
1
QD
10
20
35
55
80
Various Amounts
A Series of Possible Prices
…a specified time period
…other things being equal
LAW OF DEMAND
P
$5
4
3
2
1
QD
10
20
35
55
80
• As Price Falls…
…Quantity Demanded Rises
• As Price Rises…
…Quantity Demanded Falls
Notice what happens when the
price moves higher or lower
LAW OF DEMAND
•
Diminishing Marginal Utility
– The utility (usefulness or satisfaction) of
each additional unit consumed
diminishes.
Example: After eating 3 tacos, you desire the 4th
taco less than the 3rd. You desire the 5th less
than the 4th…..this continues until you no longer
want tacos even though you love them. It
doesn’t even matter if the 10th taco is half
price—you don’t want it b/c your stomach will
bust!
LAW OF DEMAND
•
Income Effect
– A change in a consumer’s purchasing power
b/c of a change in price.
Example: If the price of a CD changes from
$15 to $10, a consumer with $30 can
demand 3 CDs instead of 2.
Also, a salary increase
will increase a
consumer’s
demand.
LAW OF DEMAND
• Substitution Effect
– When a product’s price increases, consumers
tend to find a similar product that can take it’s
Can you
think
of some
place—these
similar
products
are called
substitutes.
other examples of
– Complements—goods
substitutesthat
and
go together. When
you buy onecomplements?
you tend to also demand the
other.
Example: Steak and Chicken= substitutes
Paint and brushes= complements
Prices of Related Goods Exercise
SUBSTITUTES
Price
Quantity Demanded
Steak
Stays Same
Decreases
Chicken
Goes on Sale
Increases
QD of steak decreased WITHOUT a price change
COMPLEMENTS
Hammers
Nails
Price
Quantity Demanded
Goes on Sale
Increases
Stays Same
Increases
QD of Nails Increases WITHOUT a price change
Warm Up Quiz
1 When the price of pizza goes up, the demand for
pizza should go…(UP or DOWN)?
2 When Ben’s demand for tacos decreases because
he has already eaten 14, this effect is called
___________________.
3 What is a possible “substitute” for Gatorade?
4 What is a possible “complement” for movie tickets?
5 When Joe Bob is able to demand more Dr. Pepper
b/c the price went down, this effect is called
__________________.
DETERMINANTS OF DEMAND—Changes in
Demand when price stays the same
1) Tastes and Preferences
– Demand increases when consumers like the
Possible
product more
(and Answers:
decreases when they like
the product
less)
-Advertising…think
about why
companies advertise.
-Product
Example:
A music Improvements
group has a hit on(New
the radio, which
leads toand
sales
of their CD to double.
Improved!)
Question: How do companies get buyers to like their
products more (w/o changing prices)?
DETERMINANTS OF DEMAND
2) Number of Buyers (Market Size)
– More buyers mean more sales
QUESTION: Will more drinks be sold at the
Astros game on a Tuesday game or a Friday
night game?
ANSWER: You’re right! Friday night because
there will be more people at the game to buy
drinks. (Remember- drink prices don’t
change)
DETERMINANTS OF DEMAND
3) Incomes
– More income leads to higher demand.
• Normal Goods- Demand INCREASES
as income goes up…ipods, movie tickets, most
things
• Inferior Goods- Demand DECREASES
as income goes up…cubic zirconium, used
clothes, etc.
DETERMINANTS OF DEMAND
4) Prices of Related Goods- Price of
one good causes the demand for
the other to change.
–
Substitutes—Good that takes the place
of another good. Examples: Steak and Chicken;
Coke and Gatorade
– Complements—Goods that go with another
good. Examples: Toothpaste
and Toothbrushes; Fries and Ketchup
DETERMINANTS OF DEMAND
5) Expectations—Demand goes up or down based on
what we THINK will happen.
• Income—If I believe I will lose my job next
month…my demand decreases today!
• Price—If I believe gas will be $5 per gallon
tomorrow…I top my tank off today!
None of these have to come true, my current demand
still changes.
GRAPHING DEMAND
Economics
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
is
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 5055 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
AWESOME!
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
35
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Connect the Points
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
4
3
2
What if
Demand
Increases?
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
Increase
in Quantity
Demanded
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
30
40
60
80
+
$5
4
3
2
1
o
Increase
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
D’
D
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
What if
Demand
Decreases?
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
Decrease
in Quantity
Demanded
$5
-10
20
40
60
4
3
2
1
o
Decrease
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
D
D’
Q
Quiz – list the determinant of demand AND which
direction the demand curve will shift.
1
2
3
4
5
Successful advertising translates into more sales at
Hipolito’s Donut Shop.
Demand for paint brushes increases after paint goes
on sale.
Demand at Raul’s Candy Store increases when an
apartment complex is built nearby.
Jorge thinks that he might lose his job and cuts his
budget.
Mickey won $1000 at the racetrack and plans to
buy the rims that he always wanted.
Price
Quantity
Demanded
A
$25
800
B
$20
700
C
$15
500
D
$10
300
E
$5
0
Graph the information
from the table above
Price
Demand Graphing Quiz
Remember to label the
axes with
numbers sequentially.
Quantity Demanded