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Understanding Consumer Demand and the Law of Demand in Economics

This overview examines the concept of demand, defining it as the desire to own goods combined with the ability to pay. It highlights the Law of Demand, which states that consumers purchase more when prices drop and less when prices rise. Factors affecting demand shifts include income changes, consumer expectations, population shifts, and advertising influences. Additionally, it discusses normal and inferior goods, the income effect, substitutive and complementary products, and the elasticity of demand, explaining how prices affect consumption patterns.

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Understanding Consumer Demand and the Law of Demand in Economics

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Presentation Transcript

  1. Consumers and Demand

  2. The Law of Demand • Demand: The desire to own something and the ability to pay for it. • The Law of Demand: Consumers buy more of a good or service when its price decreases and less when its price increases. • It’s all about getting the most for your buck (e.g. the auction market)

  3. The Demand Schedule

  4. The Demand Curve

  5. Shifts in Demand • What causes a shift? • Income • Normal Goods (Income increases → Demand increases) • Inferior Goods (Income increases → Demand decreases) • Consumer Expectations (e.g. sales) • Population (e.g. baby boomers) • Consumer Tastes and Advertising

  6. Consumer Tastes and Advertising • Food • Fashion • Entertainment • Personal Health • Toys • Clothing

  7. Shifts in Demand (Cont’d) • As consumers earn more money, they are able to spend more. • Income effect: The change in consumption resulting from a change in income.

  8. Shifts in Demand (Cont’d) • Goods used in place of one another (substitute products – e.g. sugar and Splenda). • Two goods that are brought and used together (complementary products – e.g. hot dogs and buns).

  9. Elasticity of Demand • The degree to which changes in price cause changes in quantity demanded (Elastic vs. Inelastic). • Two Reasons for Elasticity of Demand: • The relationship between income and cost of the product (Car vs. Salt) • Whether or not a substitute is available (Butter vs. Margarine)

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