Download Demand

Demand
Level of ability and willingness to pay a particular
price for a product, per period of time.
Price
Quantity demanded
Price
Quantity demanded
Determinants of the level of demand
Consumer income
income
demand
Price and availability of substitutes
number of substitutes v Price of a product
number of substitutes
price of a product
Price of substitutes
Contact lens
Price of substituted
Quantity demanded
Eyeglasses
Quantity demanded
Price and availability of complements
Price of a product Q. demanded of complements
Printers
Price of a product
Ink cartridges
Q. demanded of complements
Marketing
Marketing (advertising)
demand
Fashions, habits and tastes
If fashion changes, demand of certain products
will change.
Utility (level of satisfaction)
Quality
It attracts certain clients, even at very high prices.
Speculation
Expectations and forecasts can also influence
the level of demand.
People expect the prices to raise, so they start to
buy a lot.
State of economy
Level of confidence in the economy is low,
demand
Others
Weather and seasons
Religious beliefs
Age
Peer influence of pressure
Exceptions to the general law of
demand
• Ostentatious consumption.- Expensive
products to make customers fell good about
themselves.
Nike trainers
Demand
if price
for customers)
Vera wang wedding dresses
(Prestige and exclusivity is important
• Conspicuous consumption.- (Very rich
customers) for the purpose of upholding their
social status.
Expensive cars (Bentley)
Original paintings
(Picasso)
• Expectations
- one's
expectations for the future can also affect how much
of a product one is willing and able to buy.
It doesn't just matter what is currently going on
For example, if you hear that Apple will soon introduce a new iPod that
has more memory and longer battery life, you (and other consumers) may
decide to wait to buy an iPod until the new product comes out. When
people decide to wait, they are decreasing the current demand for iPods
because of what they expect to happen in the future.
Similarly, if you expect the price of gasoline to go up
tomorrow, you may fill up your car with gas now. So
your demand for gas today increased because of
what you expect to happen tomorrow.
This is similar to what happened after Hurricane Katrina
hit in the fall of 2005. Rumors started that gas
stations would run out of gas. As a result, many
consumers decided to fill up their cars (and gas cans),
leading to long lines and a big increase in the
demand for gas. This was all based on the
expectation of what would happen.
• Giffen goods.
Price
Quantity demanded
Price
Quantity demanded
A rise in the price of bread (inferior good) makes
so large a drain on the resources of the poorer
labouring families. They are forced to curtail
their consumption of meat and the more
expensive food: and, bread being still the
cheapest food which they can get and will
take, they consume more, and not less of it.
Giffen goods (a special case of
Inferior good)
Supply
• Willingness and ability of firms to provide
products ate given price levels per period of
time
• The higher the market price of a product, the
more willing and able producers are to supply
products in the market.
• Firms can make more profits when prices are
higher or new firms will be attracted to enter
the market when prices are higher
Price
Quantity supplied
Price
Quantity supplied
Determinants of the level of
supply
• Price of raw material
Price of raw material
Quantity supplied
Price of raw material
Quantity supplied
• Barriers of entry
Barriers of entry # producers Q supplied
Barriers of entry
# producers Q supplied
• Technology
• advances technology Q. supplied cost prod
advances technology Q. supplied cost prod
• Taxes
Taxes
Production costs Quantity supplied
Taxes
Production costs Quantity supplied
• Subsidies
• subsidies Production costs Quantity supplied
subsidies Production costs Quantity supplied
• Price of related goods
Some goods are in competitive supply
“The product with the higher relative profitability
will be produced and supplied in larger volumes”
In the case of join supply:
Production of one product
another (join) product
supply of
• Climate
Favourable weather conditions,
supply
Unfavourable weather conditions, supply
Floods
• Time: Agricultural products take time to harvest
Equilibrium price and quantity
• Demand equals supply
• Quantity that purchasers want to get is the same
with the amount that suppliers want to sell.
• Consumers want to purchase more units of a
good than producers want to sell.
• Producers cannot sell as much of their product
as they would like at that price