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Supply & Demand Analysis Ms. Stack Fall 2008 Economics DEMAND Assignment #1 Warm-up List 5 things that you have “demanded” in the past month – what do I mean by demand? Why do you demand (choose) one good over another – what are the factors/determinants in why you buy something? List 5 things you would demand if scarcity did not exist. What is “Demand?” A willingness to buy a product at a certain price Demand is from the perspective of the buyer What are some examples of goods you demand as a consumer? Miss Stack’s “Demand List” Would you prefer brand name or generic products? Law of Demand People will buy more of a product at a lower price than a higher price Why do you think this holds true? Demand Schedule Demand Schedule A list of quantity of a product that people are wiling to buy at each price At which price are consumers willing to buy the LEAST pizzas? The MOST? ONLY PRICES WILL CHANGE “QUANTITY DEMANDED” Quantity Demanded A movement along the Demand Curve that DOES NOT result in a shift – a shift results ONLY when one of the Determinants of Demand is affected A price change simply moves you to a new point on the SAME curve Demand Schedule Example Demand Schedule A Shift/Change in Demand A change in demand is determined by a factor in the “Determinants of Demand” The curve will either shift to the left (decrease) or right (increase) Determinants of Demand Consumer Tastes and Preferences Potential Customers Money Income of Consumers Substitute Goods Complementary Goods Price Expectations Tastes & Preferences People have different tastes & preferences Food, Music, Clothes, etc Advertising, Fashion, & Fads also influence your tastes and preferences for a good Potential Customers A large number of consumers can produce a greater demand for the good $ Income of Consumers If income increases, consumers will demand “normal goods” instead of “inferior goods.” Normal goods=luxury goods– brand names (i.e. Guess?, Levi’s, The Gap, Nordstrom’s) Inferior goods=“non-brand name” goods (i.e. 99 cent store, Target, Outdoor Flea Markets) Substitute Goods If the price of one good increases, the consumer will buy the alternative (or “substitute”) good, instead. This usually happens with similar products. If the price of a can of Coca-Cola increases to $2.00 while a can of Pepsi is $1.00 (and if you are indifferent between both), which one would you choose? Complementary Goods Some goods “go together.” They will “complement” one another. If the price of one complement good increases, the other good will also increase (vice versa). Examples: --Cereal & Milk --Cookies & Milk --Peanut Butter & Jelly Price Expectations If people expect that prices of a good will increase, it will (and vice versa). This will result in a change in demand and shift the demand curve. Demand Curve A downward sloping line The demand curve illustrates an positive relationship between price & quantity Supply and Demand Graph Demand Curve (Right Shift) Increases in Demand Curve will shift to the right Demand Curve (Leftward Shift) Demand Wrap-Up When we study Demand we are looking at whose perspective? What is the difference between “Quantity Demanded” and “Change in Demand?” What are the “Determinants of Demand?” Define “substitute goods” and give an example. Define “complementary goods” and give an example. Draw a Demand & Supply Graph-show Prices, Quantity, & Equilibrium BLOOD DIAMOND Clip Questions Why did the world leaders meet in Belgium at the G8 Conference? Aside from diamonds, what other natural resources in Africa was exploited in the past? What is the profit from conflict (or “rough”) diamonds used for? Of the world’s total supply of diamonds, how much is the US responsible for purchasing? How much money is made in the diamond industry? What percentage of conflict diamonds account for the industry?