Presentation on theme: "WHAT IS DEMAND? Demand: 1)The desire to own something AND 2) the ability to pay for it When we talk about demand, we are referring to the activities of."— Presentation transcript:
1 WHAT IS DEMAND?Demand: 1)The desire to own something AND 2) the ability to pay for itWhen we talk about demand, we are referring to the activities of the consumer!
2 THE LAW OF DEMAND When a good’s price is higher, consumers will buy less of it and vice versa
3 DEMAND SCHEDULESDemand Schedule: a table that lists the quantity of a good a person will buy at each different price.The quantity of a good aperson will buy at eachdifferent price is thequantity demanded.
4 DEMAND CURVESDemand Curve: a graphic representation of the information presented on a demand scheduleVertical Axis = priceHorizontal Axis = quantitydemanded* Market demand curve/schedule:shows quantities demanded by allconsumers in a market.
5 DEMAND CURVES Two characteristics of a demand curve Only relationship between price and quantity demanded is shownCurve always slopes downward* As the law of demand suggests it will!!
6 CHANGES IN QUANTITY DEMANDED A demand curve is accurate as long as price is the only thing that changes and all else is held constant (ceteris paribus)When only price changes, we move along the curve and there is a change in the quantity demanded
7 QUANTITY DEMANDED VS. DEMAND Quantity demanded refers to a single price and is represented by a single point on the demand curveDemand refers toall prices and isrepresented by theentire curve
8 SHIFTS IN THE DEMAND CURVE In the real world, many factors besides price can influence consumers.When other factors change, the entire curve shifts and there is a change in demandIf consumers buy more at every price, demand increases (shifts to the right)If consumers buy less at every price, demand decreases (shifts to the left)
9 FACTORS (DETERMINANTS) CAUSING A SHIFT IN DEMAND #1 IncomeIf the average income for a market increases, demand will increase and vice versaWe can use newspaper headlines to provide us with examples: (Product = Skippy Peanut Butter)“Recession over, morepeople going back to workas unemployment rate drops”
10 FACTORS CAUSING A SHIFT IN DEMAND #2 Consumer ExpectationsIf consumers expect the price of a good to rise in the near future, their current demand will increase and vice versaExample (Product = Snowboards, Month = Dec.): “Snowboard Clearance Sale After New Year!”
11 FACTORS CAUSING A SHIFT IN DEMAND #3 PopulationIf a market’spopulation increases, demand will increase and vice versaExample: “Thousands Leaving State EachWeek Due To High Home Costs”
12 FACTORS CAUSING A SHIFT IN DEMAND #4 Consumer Tastes/AdvertisingIf consumers suddenly desire a good due to shifting tastes, demand will increase for that good and vice versaExample (Product = SkippyPeanut Butter): “SkippyPeanut Butter Recalled DueTo Salmonella Scare!”
13 FACTORS CAUSING A SHIFT IN DEMAND #5 Price of Complementary GoodsIf goods A and B are usually bought together and the price of good A rises, demand for good B will decrease and vice versaExample (Product = salsa):“Price of Tortilla ChipsGoing Through The Roof!
14 FACTORS CAUSING A SHIFT IN DEMAND #6 Price of SubstituteGoodsIf the price of Good A, which Good B can be substituted for, increases, demand for Good B, will increase and vice versaExample (product = chicken): “Price of Beef Has Increased 20% in Three Months”
15 ACTIVITY 2: Shifts in Demand Draw Graph From Board HereBeef Consumption in May (start at curve C)1. Price of Beef to Rise in JuneFactor: _________________ Demand: _________ Curve: ____* Move one curve at a time** Base your curve on the previous answer (don’t go back to C every time)*** Use each factor once (one will be used twice)
16 ACTIVITY 2: Shifts in Demand 2. Millions of Immigrants Swell U.S. Population3. Pork Prices Drop4. Government Says Beef Is Bad For Your Health5. BEEF PRICES FALL6. Americans’ Monthly Income Drops Again7. Shortage Increases Cost of Charcoal8. Beef Industry Begins Campaign Promoting Beefy Benefits* There is one with no factor, and therefore, no change in demand and you will stay at the same curve (consult Activity 1, part C, #5 for a hint)!
17 ACTIVITY 2: Shifts in Demand Sunscreen In June (begin at curve C again)9. FDA Warns of Dangers of Skin Cancer as Summer Returns10. Beach Towels on Sale at Rite-On-Aid11. Government Raises Income Taxes To Pay For Bank Bailout12. Vacationers Pour Into Region For Summer Fun13. Hats and Long-Sleeve T-Shirts on Sale at Rite-On-Aid14. Cost of Sunscreen Decreases As Weather Turns Hot15. Sunscreen To Go On Sale Over 4th of July Weekend
18 ELASTICITY OF DEMANDElasticity of demand: a measure of how consumers react to a change in priceIf you generally keep buying a good when price increases, and vice versa, your demand is inelastic (limited reaction to price change)If you buy much less of a good because of a price increase, and vice versa, your demand is elastic (strong reaction to price change)
19 ELASTICITY OF DEMAND An elastic demand curve will be more horizontal An inelastic demandcurve will be morevertical (totallyvertical is perfectlyinelastic)
20 FACTORS AFFECTING ELASTICITY #1 Availability of SubstitutesFew substitutes = inelastic demandExamples: concert tickets, medicinesMany substitutes = elastic demandExamples: apples, apple juice
21 FACTORS AFFECTING ELASTICITY #2 % of BudgetSpent on GoodIf large % of budget is spent on good = elasticExample: eating in restaurantsIf small % of budget is spent on good = inelasticExample: dry beans, comet cleanser
23 FACTORS AFFECTING ELASTICITY #4 Change Over TimeConsumers sometimes need time to adjust to price changes, so demand can be inelastic inshort-term andelastic in long-termExample: gasoline
24 ELASTICITY AND TOTAL REVENUE Total revenue = price multiplied by quantity demandedIf a business raises its prices and total revenue decreases, demand is elasticIf a business raises its prices and total revenue increases, demand is inelastic* Elasticity of demand for a good varies at every price level
25 PRODUCT: PEANUT BUTTER 1. Jelly price increases2. Schools back in session; vacationers return home ready to shop3. Almond butter price decreases4. Unemployment rate drops5. Peanut butter price to drop6. Peanut butter price drops7. Someone influential stars in new peanut butter commercial
26 PRODUCT: STRAWBERRY JELLY 1. New Mall opens; over 1,000 jobs filled 2. Strawberry Fields Forever hits number 1 on charts over 40 years later! 3. Strawberry jelly price increase expected soon 4. Grape jelly price decrease 5. Strawberry price increase 6. New census data shows migration out of state 7. Peanut butter price increase
27 PRODUCT: PEANUT BUTTER * Start at C. Arrange the headlines so that the final curve is C. Write the # of the headline, increase/decrease/no change, and the new curve for each. 1. Jelly price increases 2. Schools back in session; vacationers return home 3. Almond butter price decreases 4. Unemployment rate drops 5. Peanut butter price to drop 6. Peanut butter price drops 7. Psy stars in new peanut butter commercial