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DEMAND

Learn about the concept of demand, its relationship with prices, and the factors that influence it. Discover the difference between demand and quantity demanded, as well as the law of demand and its implications. Explore the effects of income, substitution, and diminishing marginal utility on demand. Understand how changes in price and other determinants of demand impact the quantity demanded.

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DEMAND

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  1. DEMAND Your Wish can be Your Demand!

  2. Who Want’s One?

  3. What is Demand?

  4. What is DEMAND? DESIRE!

  5. What is DEMAND? Willingness to Pay and the Ability to Pay

  6. What does it Mean? • Demand= the willingness and the ability to pay for goods and services. • Prices= tools market uses to coordinate individual desires.

  7. Schedules & Curves Demand vs. quantity demanded Individual demand vs. market demand

  8. Price Quantity Demanded per Pizza per Week (millions) a $15 8 b 12 14 c 9 20 d 6 26 e 3 32 Demand Schedule

  9. a $15 b 12 c 9 Price per pizza d 6 e 3 D 0 8 14 20 26 32 Millions of pizzas per week Demand Curve for Pizza

  10. (a) Hector (b) Brianna (c) Chris $12 $12 $12 8 8 8 d d d Price C B H 4 4 4 1 2 3 1 2 Pizzas (per week) 1 Individual Demand for Pizzas

  11. (d) Market demand for pizzas D + + = $12 8 d d d Price H B C 4 1 2 3 6 Pizzas (per week) Market Demand for Pizzas

  12. DEMAND:Curve vs Schedule Shows the relationship Between Price and Quantity Demanded! • Your subtopics go here

  13. What quantity of apple juice does Reiko demand at $2 a bottle?What quantity of apple juice does Reiko demand at $1 a bottle? 0 4 • Your subtopics go here

  14. If the price of a bottle of apple juice went from $1.50 to $1.00, how would that affect the quantity of bottles Reiko would demand? • Your subtopics go here

  15. DEMAND vs Quantity DEMANDED • Demand = • entire graph • Quantity demanded at • ALL prices • Quantity Demanded = • Points on the curve • Your subtopics go here

  16. What is the Law of Demand? What is the relationship between price and quantity demanded?

  17. Law of Demand There is an inverse relationship between price and quantity demanded. CeterisParibus All things remaining constant • As Price increases Quantity demanded decreases • As Price decreases, Quantity demanded increases As $ QTY Demanded As $ QTY Demanded 

  18. As price increases, quantity demanded decreasesAs price decreases, quantity demanded increasesAs $ QTY Demanded As $ QTY Demanded 

  19. Demand Curve • A graphic way to illustrates the law of demand • slopes downward and to the right

  20. WHY? What Accounts for the Law of Demand?

  21. WHY? What accounts for the law of demand? • Income effect • Demand changes for some items when a consumer’s income changes • Substitution effect • People tend to substitute for goods whose price has gone up. • Diminishing marginal utility • Usefulness of goods lessens with each additional unit you acquire

  22. INCOME EFFECT Demand changes for some items when a consumer’s income changes • Normal Goods – any good whose demand increases when income increases  income = demand for the good/service • Inferior Goods – any good whose demand decreases when income increases  income = demand for the good/service

  23. Substitution Effect People tend to substitute for goods whose price has gone up. • Substitute: A product or service that can take the place of another product or service • Complement: A good or service that is used in conjunction with another good or service

  24. Diminishing Marginal Utility • What Does It Mean? • The usefulness of goods lessens with each addition unit you acquire • Example: • You just returned from two days on a deserted island with no food or water.

  25. Quantity Demanded v. Demand Shifting Curves Vs. Movement Along the curve

  26. Movement Along a Curve vs. a Shift of the Curve • A change in price, other things constant, causes a movement along a demand curve, changing the quantity demanded. • A change in one of the determinants of demand other than price causes a shift of a demand curve, changing demand.

  27. Movement Along a Curve • A graphical representation of the effect of a change in price on the quantity demanded. • Movement from one point on the line to another point

  28. Price Quantity Demanded Change in QUANTITY Demanded Pizza Market • The price increases from $1 to $2 • Quantity Demanded changes from 200 to 100! • DEMAND itself did not change! • Only move from one point to another! $2 $1 D 0 100 200

  29. Change in QUANTITY Demanded CAUSED by a CHANGE IN PRICE ONLY!

  30. Price Quantity Demanded Change in QUANTITY Demanded Pizza Market Effect: • MOVEMENT from one point on the curve to another $2 $1 D 0 100 200

  31. Shifting Curve • A graphical representation of the effect of anything other than price on demand • This is known as a CHANGE IN DEMAND

  32. Change in Demand Pizza Market • The price a substitute increases. • Quantity Demanded changed at every price! • NEW CURVE! $2 Price $1 D D1 0 100 200 300 Quantity Demanded

  33. Change in Demand Pizza Market Pizza Market Caused by: • A change in something OTHER THAN THE PRICE!!!! $2 $2 Price Price $1 $1 D D1 0 100 200 300 Quantity Demanded

  34. Change in Demand Pizza Market EFFECT: • SHIFT of the curve • Creation of a new curve $2 Price $1 D D1 0 100 200 300 Quantity Demanded

  35. Change in Demand Pizza Market Shift to the Left = decrease in demand Shift to the RIGHT = INCREASE in demand $2 Price $1 D D1 0 100 200 300 Quantity Demanded

  36. Determinants of Demand What Causes a shift in the Demand Curve?

  37. Determinants of Demand POPULATION •  In # of buyers = Demand  • In # of buyers= Demand  • Example: increase in immigration; plague

  38. Determinants of Demand INCOME •  in Income = Demand  •  in income = Demand 

  39. Determinants of Demand PREFERENCES • If something is a fad = D  • When something goes out of style = D 

  40. Determinants of Demand EXPECTATIONS • Expect $ to  = Demand today  • Expect $to = Demand today  • Example: If expect price of Coke to triple tomorrow, we will buy more Cokes today while they are cheaper

  41. Determinants of Demand RELATED GOODSPrice of Complementary Goods When the price of a complement good falls, demand rises for the good whose price has not changed. •  In $ of complement = Demand  • in $ of complement = Demand  • Example: If price of hot dogs increases, then Demand for hot dog buns will decrease

  42. Determinants of Demand Change in Price of Substitutes When the price of a substitute good falls, demand falls for the good whose price has not changed. •  in $ of substitute = Demand  •  in $ of substitute = Demand  • Example: If the price of Coke increases, then the demand for Pepsi will increase.

  43. Let’s Practice! DEMAND Shifting Scenarios Turn to back of your predictions and complete the chart for homework.

  44. DEMAND SHIFTING SCENARIOS

  45. Let’s Practice as a Class! Get out a piece of paper and draw a large arrow

  46. What Happens to Demand If… The Scenario: You go to your favorite burger place. The price of your favorite burger has increased, but the price of the chicken sandwich is the same. Over the course of the week, you generally buy both burgers and chicken sandwiches. • How will the increase in price of a burger affect your purchase of burgers? • How does the substitution effect change your purchases? • How does the income effect change your purchases?

  47. What Happens to Demand IF… people change their preference from hamburgers to hot dogs? You are the owner of a hotdog making company… Price D1 D QTY Demanded

  48. What Happens to Demand IF… US negotiates a deal with China to trade hot dogs for egg rolls You are the owner of a hotdog making company… Price D1 D QTY Demanded

  49. What Happens to Demand IF… the price of ground beef plummets You are the owner of a hotdog making company… Price D D1 QTY Demanded

  50. What Happens to Demand IF… the price of hotdogs decreases You are the owner of a hotdog making company… Price D QTY Demanded

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