1. Supply and Demand: Introduction to Demand Lesson 2.5

2. Supply and Demand: A Model of a Competitive Market Sellers and buyers constitute a “market”. A Competitive Market is where there are many buyers and sellers. The Supply and Demand model works well for competitive markets –Demand Curve –Supply Curve –Factors that cause the supply and demand curves to shift –Market equilibrium, equilibrium price, equilibrium quantity

3. Demand –The desire to own something, and the ability to pay for it. The Law of Demand –As prices go up quantity demanded goes down. –As prices go down quantity demanded goes up.

4. Demand Schedule

5. Market Demand Demand curves can show the demand for an individual, or for a “market” of any defined size (classroom, CPHS, Pleasant Hill, etc.)

6. Demand Curve The demand curve is a downward sloping line showing the inverse relationship between quantity and price

7. Shifts in demand Shifts in demand come from changes other than the change in price Changing technology Seasonal changes Good or bad news Income and inferior goods Consumer expectations Population Consumer taste and Advertising Substitute and Complimentary goods

8. Substitution Effect The substitution effect takes place when there is a similar product which can be substituted if the price of the original product becomes too high. –Butter vs. Margarine –Coke vs. Pepsi (or any other soda, drink)

9. Complimentary Goods Some goods go naturally together. When you buy product A, product B goes with it, so you buy them together. –Cereal and milk –Peanut butter and Jelly and Bread –Skis and Ski poles and Ski Boots –Flashlight and batteries

10. Income Effect As income rises, demand for “inferior” products goes down, while demand for superior products rise. Wal-Mart vs. Bloomingdales Generic products versus Name brands