Download Demand

“Demand”
Demand
The desire, ability, and willingness
to buy a product.
Demand Schedule
A listing that shows the quantity
demanded at all prices.
Demand Curve
• Graphing the demand schedule.
• Downward slope moving from
left to right.
Law of Demand
When the price goes down, demand
goes up.
Change in Quantity Demanded
As the price changes, demand
changes. On a graph, it is the
movement ALONG the curve.
Change in Demand
• Demand changes for other
reasons instead of a price change.
• When this happens, the ENTIRE
demand curve shifts on a graph.
• A shift to the right is an increase.
• A shift to the left is a decrease.
Ex: income changes, competition,
consumer tastes change
Change in Demand
Question: Is it
increasing or
decreasing?
Answer:
Increasing
SHIFTS in the Demand Curve
What factors
would cause
a SHIFT in
the demand
for coffee?
$1.25
D
10
25
40
SHIFTS in the Demand Curve
Income
$1.25
D2
D
25
40
More coffee is demanded at $1.25
What would
happen if you
receive an increase
in income?
SHIFTS in the Demand Curve
Income
$1.25
D2
10
25
D
0
Less coffee is demanded at $1.25
What would
happen if your
income were
reduced?
SHIFTS in the Demand Curve
Change in
Preferences
$1.25
D2
D
25
40
More coffee is demanded at $1.25
What if you began
to enjoy coffee
more than before?
SHIFTS in the Demand Curve
Change in
Preferences
$1.25
D2
10
25
D
0
Less coffee is demanded at $1.25
What if you
started to get sick
of drinking coffee?
SHIFTS in the Demand Curve
Expectations
$1.25
D2
10
25
D
0
Less coffee is demanded at $1.25
What if you knew
there was going to
be a sale on coffee
next week?
SHIFTS in the Demand Curve
Expectations
$1.25
D2
D
25
40
More coffee is demanded at $1.25
What if you knew
that a sale on
coffee were
ending tonight?
Substitutes
One product is purchased instead
of another because of price.
Vs.
Kentwood
Sam’s Choice
Substitutes
Vs.
Fruit Loops
Fruit Islands
Substitutes
Butter vs. Margarine
Complements
Price of a related good changes,
changing the demand for its
partner – product.
Camera and Film
Complements
Hot Dog and Hot Dog Bun
SHIFTS in the Demand Curve
Price of
Related Goods
SUBSTITUTES
$1.25
D2
10
25
D
0
Less coffee is demanded at $1.25
SHIFTS in the Demand Curve
Price of
Related Goods
SUBSTITUTES
$1.25
D2
D
25
40
More coffee is demanded at $1.25
SHIFTS in the Demand Curve
$1.25
D2
D
25
40
More coffee is demanded at $1.25
Price of
Related Goods
COMPLEMENT
S
What if the price
of donuts went
down?
SHIFTS in the Demand Curve
Price of
Related Goods
COMPLEMENT
S
$1.25
D2
10
25
D
0
Less coffee is demanded at $1.25
What if the price
of donuts went
up?
Elastic Demand
When a small change in price
causes a huge change in demand.
This
computer
system in
1981 cost
$1700.
Elastic Demand
This
computer
system in
2004 costs
$700.
Inelastic Demand
When a small change in price causes
little or no effect in the demand of a
product.
Insulin shot
for diabetics
Elasticity = Flexibility
Demand  Elastic  Consumer can be
flexible and delay the purchase or buy a
substitute (example: T-bone steaks)
Demand  Inelastic  Consumer cannot
be flexible and must purchase the
product no matter what (example: salt)
“Supply”
Many of the terms for supply are
the same as demand, except, some
are simply opposite.
When looking at demand, you are
looking from the buyer’s point of
view.
When looking at supply, you are
looking from the seller’s point of
view.
Supply Schedule
On a supply schedule, for example,
as the price goes down, the quantity
supplied goes down.
If the price lowers, the supplier
will slow down production to make
up for the loss in profits.
Supply Schedule
Supply Curve
• Graphing the Supply Schedule
• Upward sloping from left to right.
• Change in Quantity Supplied is
movement along the curve.
Change in Supply is the
same as Change in Demand.
The curve shifts because of
reasons other than price.
And once again, a shift to the
right is an increase and a
shift to the left is a decrease.
Question: Is the supply curve increasing
or decreasing? Answer: Decreasing
“Prices and
Decision Making”
Equilibrium Price
The point where the demand curve
and the supply curve meet on the
graph.
Surplus and Shortage
When the demand for a product
goes down, the business has a
surplus of products. Usually, they
will slow production down.
When the demand for a product
goes up, the business will have a
shortage of a product until it
increases the production to
compensate.
Surplus vs. Shortage
Depreciation
The gradual wear and tear on
capital goods over time and
through use. Therefore, the
value has decreased.
Rationing
A system under which a
government agency decides
everyone’s fair share.
Examples:
•Great Depression
•WWII
•Gas shortage of late 1970’s