Download Demand

Demand
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A market is any
place people come
to buy and sell
goods and services.
A market has two
sides: a buying
(demand) side and
a selling (supply)
side.
Defined
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The desire to own something and the ability to pay
for it.
Demand is the willingness and ability of buyers to
purchase different quantities of a good at different
prices during a specific time period.
Willingness to purchase a good refers to a person’s
want or desire for the good.
Having the ability to purchase a good means having
the money to pay for the good.
Both willingness and ability to purchase must be
present for demand to exist
Law of Demand
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Says that as the price of a good increases,
the quantity demanded of a good
decreases. As the price of a good
decreases, then quantity demanded of the
good increases. (Price and quantity
demanded move in opposite directions)
If P↑ then Qd↓
If P↓ then Qd↑
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The law of demand is the result of two
patterns:
– Substitution effect
– Income effect
Substitution Effect
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An alternative to an item in which the
price rises.
Takes place when a consumer reacts
to a rise in the price of one good by
consuming less of that good and more
of a substitute good.
Example: If the price of beef goes up,
you may buy more chicken.
Income Effect
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When prices go up, it limits our money
Results when we cut back our
purchases of some goods.
Demand Schedule
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Lists a quantity of a
good that a person
will purchase at
various prices in a
market.
Market Demand Schedule
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Looks at consumers as a whole
When you add up the demand schedules of
every buyer in the market
Schedule shows the quantities demanded at
various prices by all consumers in the
market
The only difference between the schedules
is that this list larger quantities.
Demand Curve
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Graphic
representation of a
demand schedule.
Vertical axis is the
price and the
horizontal axis is
the possible
quantity demanded.
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Page 90 in packet demand curves
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All demand schedules and all demand
curves reflect the law of demand
Application
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Producers and advertisers use a variety of
methods to try to influence consumer tastes
and preferences, and through that, demand.
Distinguishing fact from opinion in
advertising enhances consumer decision
making.
Consumers make better choices when they
understand and consider the factors that
influence their demand for goods and
services.
Try to influence demand of product.
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Advertisers are interested in increasing the
demand for their products.
Two factors that influence the demand for a
product are consumer tastes and
preferences.
Consumer tastes and preferences can be
things other than price, such as quality,
color, design, flavor, size and individual
value.
Shifts in the Demand
Curve
Changes in Demand
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A demand curve is accurate only as long as there
are no changes other than price that could affect
the consumer’s decision.
When price changes, we move along the curve to a
different quantity demanded
An increase in price results in less quantity
demanded
A decrease in price results in more quantity
demanded
A change results in an entire shift in the demand
curve
Increase in Demand
Decrease in Demand
CAUSES OF SHIFT IN
DEMAND CURVE
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Personal income
Consumer expectations – economy as a whole,
future, when are certain products usually cheaper,
government actions such as taxes
Changes in population
Changes in demographics
Changes in consumer tastes
Advertising trends
Prices in related goods – complements and
substitutes
Elasticity of Demand
Defining Elasticity
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The way in which consumers respond to
price changes.
How drastically buyers will cut back or
increase their demand for a good when the
price rises o falls.
Inelastic – relatively unresponsive to price
change
Elastic – very responsive to price change –
rubber band
Elastic
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When a change in price, either up or down,
leads to a relatively larger change in the
quantity demanded.
Demand changes by a larger % than
price. For example if price rises by 10%
quantity demanded falls 15%.
Oysters, restaurant meals and automobiles
– price changes have a strong impact on
how much consumers will buy.
Inelastic
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When a change in price leads to a
relatively smaller change in the
quantity demanded.
Quantity demanded changes by a
smaller percentage than price. For
example if price rises by 10%,
quantity demanded falls by 5%.
Factors Affecting
Elasticity
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Availability of substitutes
Relative importance
Necessities v. Luxuries
Changing in pricing over time
Elasticity and Revenue
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Elasticity is important to the study of
economics because elasticity helps us
measure how consumers respond to
price changes for different products.
Also important tool for business
planning