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Demand

Demand. Chapter 4. What is Demand?. The willingness to BUY a product Essential in understanding the market Determines pricing Quality of goods and services Distribution of goods and services MICROeconomics = deals with behavior and decision making by individuals and buisnesses .

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Demand

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  1. Demand Chapter 4

  2. What is Demand? • The willingness to BUY a product • Essential in understanding the market • Determines pricing • Quality of goods and services • Distribution of goods and services • MICROeconomics= deals with behavior and decision making by individuals and buisnesses.

  3. Demand Schedule/Curve

  4. Law of Demand • Demand varies INVERSELY with its price • Price Demand • Price Demand • WHY?

  5. Changes in Quantity Demand • Change in quantity purchased due to change in price • Income Effect: • Change in QD due to change in consumer’s income • itunes song $2.99 each x 25 =$74.75 • itunes song $ .99 each x 25 =$24.75 • Difference of $50 consumers has left of income

  6. Change in Quanity Demand • Substitution Effect: • Change in QD due to change in the relative price of produce • Popcorn vs. Candy at movies • Movie goer only had $6 to spend on refreshments at the movies. • Popcorn $3.50 and candy is $4.00. • Movie goer chooses popcorn with some $ left over to buy a small drink.

  7. Now that you have charted your curve… • How might the QD for tickets change due to the income effect? • Substitution Effect?

  8. Changes in Demand

  9. Changes in Demand • Buy different amounts at same prices • Creates new curve _____________________ • 1. Consumer Income • 2. Consumer Trends • 3. Price of Related Products

  10. http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=change+in+demandhttp://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=change+in+demand

  11. Consumer Income • Change in consumer income changes demand • Ex. Poor economy • Both up or both down • Why? • Income D • Income D

  12. Consumer Income • Which curve represents increase in consumer income? Decrease in consumer income? • How did you determine your asnwers?

  13. Consumer Taste • Trends, ads, news affect consumer taste • Ex. Bell bottom jeans • Both go up or both go down • Why? • Pop D • Pop D

  14. Consumer Taste Create a graph depicting the shift of demand

  15. Price of Related Products • Change in price of related products changes demand • Substitutes • Butter v. margarine • Compliments • Pancakes and syrup • Substitutes • Prices goes UP • QD goes DOWN • Substitute goes UP • Complimentary • Price goes UP • QD goes DOWN • Complimentary Goes DOWN

  16. Practice • Name a product that you recently bought because it went on sale. Identify at least one substitute for the product and a complimentary if possible. What happened to your demand for the substitute good when you purchased the sale item? What happened to your demand for the complimentary item when you purchased the sale item? Distinguish between a change in quantity demanded and a change in demand.

  17. Marginal Utility • The EXTRA usefulness or satisfaction a person gets from acquiring one more unit of a product. • Amount added “at the margin” • 1 cup of hot cocoa after playing in the snow vs. 2 cups • When you reach saturation you stop buying – your marginal utility is less than then the price is worth

  18. Diminishing Marginal Utility • Too much hot cocoa makes your want it less….your marginal utility is diminishing or going down • The more units a person acquires the less eager they are to buy more • Demand decreases

  19. Homework • Find a headline from a current newspaper (paper or online) that illustrates something that could cause a CHANGE in DEMAND. • Determine what change in demand would occur and why? • Create a general graph showing the shift of the demand curve and write a brief explanation of the reason for the shift.

  20. Demand Elasticity • Used to indicate the extent to which changes in price cause changes in the quantity demanded • Elastic demand = small change in price has large change in QD • Inelastic demand= change in price causes small change in QD

  21. ELASTIC Demand • Usually wants and not needs • Price increase or decrease will show noticible change in QD • Example: T-bone steaks • Price drop from $6.oo/lbs. to $3.00 will increase demand

  22. QD INELASTIC Demand Price • Usually needs • When price changes QD remains constant • Ex. Price of table salt decreases, QD will not really change

  23. Specific v. General Market • Depending on market size – a product can be elastic or inelastic • Specific markets= more elastic • Local gas station= high gas prices, low QD • General markets= less elastic • All gas stations= high gas prices, QD constant

  24. Elasticity Practice • Create your own example of a product that can be sold in the specific and general markets and explain the affect on demand elasticity.

  25. Determinants of Demand • Can the Purchase be Delayed • Medicine vs. Twinkies • Are Adequate Substitutes Available? • Chick Fil A Waffle Fries v. McDonald’s French Fries • Does the Purchase Use a Large Portion of Income? • New car vs. Mc Donald’s Strawberry Shake

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