Download Demand and Demand Determinants Intro

Standard
 SSEMI2a.
 Define
the Law of Demand.
Demand
 Definition:
The desire, ability, and
willingness to buy a product.

(Ex: Bill Gates is able to purchase a Ferrari, but if he isn’t willing he has
NO demand for one)
 Law
of Demand states the quantity
demanded of a good or service varies
inversely with the price
Quantity
Demanded
Price
Why does the Law of Demand
occur?
The law of demand is the result of three
separate behavior patterns that
overlap:
1.
The Substitution effect
2.
The Income effect
3.
The Law of Diminishing Marginal
Utility
We will define and explain
each…
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Why does the Law of
Demand occur?
1. The Substitution Effect
 If
the price goes up for a product, consumer
buy less of that product and more of another
substitute product (and vice versa)
2. The Income Effect
 If
the price goes down for a product, the
purchasing power increases for consumers allowing them to purchase more.
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Why does the Law of Demand
occur?
3. Law of Diminishing Marginal Utility
U-TIL- IT- Y

Utility = Satisfaction

We buy goods because we get utility from them

The law of diminishing marginal utility states that
as you consume more units of any good, the
additional satisfaction from each additional unit
will eventually start to decrease

In other words, the more you buy of ANY GOOD
the less satisfaction you get from each new unit.
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Demand Curve
A
graph showing quantity demanded at
each and every price in the market.
Price
Quantity Demanded
Marginal Utility
 The
extra usefulness or satisfaction a
person gets from acquiring or using one
more unit of product
 Diminishing Marginal utility: states the
extra satisfaction we get from using
additional quantities of the product
begins to diminish
Marginal
Extra
Change in Quantity
Demanded
A
movement ALONG THE DEMAND
CURVE that shows the change in quantity
in response to a change in price.
$100
100 units
Change in Demand
 When
there is a CHANGE in DEMAND:
People are now willing to buy different
amounts of the product at the same
prices.
 There
are 6 factors that cause a change
in demand:
Remember: NICEST
Number of Consumers
 The
market curve shifts as the number of
consumers change.
 With
the U.S. population aging, demand for
different products will increase
Consumer Income
 Changes
in the amount a person makes
can cause a change in demand.
Complements
 Goods
that are related
 The use of one increases the use of the
other
 Peanut
butter and Jelly
 Chips and dip
Changes in Expectations
 This
refers to the way people think about
the future.
 If
people believe that the future, their job or
their lifestyle will experience significant
change, consumer spending will likely
decrease.
Substitutes
A
product can be used in place of
another product.
 You
can use Splenda or Equal for Sugar
Consumer taste
 Consumers
do not always want the same
things over time.
 Are
Beenie Babies still popular?
 What about Smart phones?