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Demand
• Demand: the desire, willingness, and
ability to buy a product at various possible
prices
• Demand Schedule: a list of the quantity
demanded of a good for each price in a
series of possible prices
Law of Demand
• As price falls, more quantity will be
demanded. As price rises, less quantity
will be demanded.
• Inverse relationship exists between price
and quantity demanded.
• Does this make sense with what you see
in life?
• Demand Schedule for 16 oz. Coca-Cola
Coca-Cola
• Price
Quantity
Demand Curve
• $0.25
100
•
.50
70
•
.75
50
P
• 1.00
25
• 1.25
10
• 1.50
5
Q
•
Convert the above Demand Schedule into a Demand
Curve
• Both the schedule and the curve represent
the current demand for Coca-Cola.
• The demand remains the same unless a
demand determinant changes.
• The change will then lead to a new
different/shifted curve.
Change in Demand vs. Change in
Quantity Demanded
• A change in demand means a change in
quantity demanded at every price. A shift
in the demand curve results.
• A change in quantity demanded occurs
only when the price of a good changes.
This leads to a movement along the curve,
but NOT a shift of the entire curve.
3 Things that help “prove” the Law
of Demand
• and explain why the demand curve is
downsloping.
• 1. Income Effect: At a lower price, you can
afford more goods without giving up any
alternative goods. A price decline increases
your purchasing power
• 2. Substitution Effect: As prices decrease, the
good becomes relatively cheaper compared to
substitutes. Buyers who may have purchased
the substitute may now buy the cheaper good.
•
•
•
3. Law of Diminishing Marginal Utility:
The satisfaction or utility you get from
consuming additional units of a good will
tend to get less and less. So consumers
may only buy additional units if the price
is decreased.
Ex. Burgers. 1st is very satisfying, 2nd is
less, 3rd is even less
6 Non-price Determinants of
Demand
•
You MUST know and memorize these!!!
• 1. Change in consumer tastes
and preferences Examples:
- Companies Advertise!! They advertise
to change demand!
- Society changes – values, norms
- Studies, new info
2. Change in number of consumers
in the market• Population may increase
• More young, or older, or men, or women
may move into a market
Baby Boomers?
3. Change in income of consumers• As income climbs demand increases
• As income declines and unemployment
increases demand decreases for normal
goods
• Unless it’s an ____________ good!
4. Change in price of substitutes-
Coke prices drop, demand
for Pepsi decreases
5. Change in price of
complementary goodsAs price of peanut butter
goes up there’s less
demand for jelly
6. Change in expectations of
future prices and incomes• If you expect higher prices in the future
you’ll buy more now
• If you expect lower prices in the future
you’ll buy less today
• Huge for stock market and real estate!
And the curves shall shift…
• Changes in these determinants will cause
a new demand schedule, new quantities at
each possible price, and a new demand
curve.
Remember…
• When the determinants change
for a good, the demand curve will
shift…
• But when the price of the good
changes, there will be a
movement along the curve.
SHIFT HAPPENS!
A Change in Demand
D1
D2
This is an
increase in
demand.
Remember :
P
Q
Increase is
always to
the right!
A Change in Quantity Demanded
D
Is a movement
along the curve
because of a
change in price
5
P
3
100
150
Q
Try the quiz…
• Online graph challenge
• Online Multiple Choice