Download Determinants of Demand Notes

What would have been a good
investment in 1971?
- Originally, cost $0.10
(June 1938)
- In 1971, you could have
bought this comic for
$300.00
- Recently, this comic (in
mint condition) sold at an
auction for $137,000.00!!
Now, lets look at the numbers of another example:
Amazing Adult Fantasy
(1st Spiderman)
1971
$10.00
1975
$40.00
1979
$360.00
1983
$1,100.00
1987
$1,100.00
1991
$7,000.00
1994
$11,000.00
12000
10000
8000
6000
Value
4000
2000
0
1971
1975
1979
1983
1987
1991
1994
By what percentage did the value of the
comic go up?
1,100 %
The reason that this happens is because of an economic
concept known as the “The Determinants of Demand.”
sometimes we also call them NON-PRICE FACTORS.
1.) Tastes
and Preferences: As consumers' tastes or
preferences change, the demand for products will also
change.
70s
80s
Today??
2.) Number of Consumers: If more buyers enter a market, the
demand for the product will increase.
“What about rule #1?”
"Good evening. You all know the
rules of King of the Mountain. Rule
number one: you do not talk about
King of the Mountain. Rule number
two: there are no rules."
”That’s more of a
guideline than a rule…
DO NOT interrupt!”
3.) Consumer Income: As consumers' incomes change, the demand
for goods and services will change.
For most products, demand increases when consumers have larger
incomes. These types of goods are called “normal” goods:
For some products, however, demand actually decreases when
consumers have larger incomes. These types of goods are called
“inferior” goods:
4.) Price of Related goods: When the prices of related goods
change, demand may increase or decrease. In this category,
there are also two types of goods:
When a good can be used in place of another, it is called a “substitute” good.
Generally, when the price of something rises, people tend to buy the substitute.
On the other hand, when goods are generally purchased together, they are called
“complimentary goods.” Generally, when the price of one compliment rises, people
tend to buy less of the substitute.
5.) Consumer Expectations: Changes in consumer expectations
about the future can cause changes in the current demand for
products. For instance, if people think it’s going to be cold in the
coming months (because it’s winter), they will buy more warm
clothes now…
Or…if you hear that a new
Apple Tablet CPU is coming
out in a few months, it might
deter you from buying a new
computer now…
As a helpful reminder to remembering the Determinants of Demand
(Non-Price Factors), since they might (ahem) show up on a test, here
is a handy way to remember them…
T–R–I–B-E
T = Tastes and Preferences
R = Related goods
I = Income (consumers)
B = Buyers (number of)
E = Expectations (consumer)
Now, applying these ideas to a Demand Curve is Simple:
1.) Whenever there is a change in Price, there is a shift along the
Demand curve:
In this example, moving from point X to point
Y means we move from Price 1 (P1) to Price 2
(P2) and Quantity Demanded moves from
Quantity 1 (Q1) to Quantity 2 (Q2).
It’s like moving ALONG the curve.
An increase in demand
means the graph will move
to the right (out from D1 to
D2):
An decrease in demand
means the graph will move
to the left (in from D1 to
D3):
Price
2.) Whenever there is a change in anything besides price (hence
“non-price factors”), the whole demand curve SHIFTS due to the
determinants of demand.
D3
D1
D2
Quantity
REMEMBER, in economics a moving ALONG the curve is known as a
change in the Quantity Demanded.
A SHIFT of the curve is known as a change in Demand.
Now kids, since we know about the Determinants, how can we use
them to understand what happens with collectibles like comic
books?
Tastes and Preferences: Collecting comic books became "cool" for baby boomers.
Consumer Income: Potential collectors, as they become older, tend to have higher
incomes providing more discretionary dollars to spend on comics and other
collectibles.
Price of Related Goods: If prices of alternative collectibles, such as baseball cards
or toys, increased more rapidly, this could cause an increase in the demand for
comic books as baseball card collectors switched to comic books.
Number of Consumers: The number of potential buyers increased as baby boomers
became adults.
Consumer Expectations: Buyers expected prices to increase as the number of
collectors increased. Buyers also knew the supply was limited; for some older
books it is fixed and/or diminishing.
ANY QUESTIONS???