Supply & Demand Analysis Miss Varee Spring 2004 Spring 2004Economics

Essential Questions What is the difference between Quantity Demanded and Change in Demand? What is the difference between Quantity Demanded and Change in Demand? What are the Determinants of Demand? What are the Determinants of Demand? Define substitute goods and give an example. Define substitute goods and give an example. Define complementary goods and give an example. Define complementary goods and give an example. Draw a Demand & Supply Graph- show Prices, Quantity, & Equilibrium Draw a Demand & Supply Graph- show Prices, Quantity, & Equilibrium

What is Demand? A willingness to buy a product at a certain price A willingness to buy a product at a certain price What are some examples of goods you demand as a consumer? What are some examples of goods you demand as a consumer? List 5 things that you have demanded in the past month List 5 things that you have demanded in the past month

Miss Varees Demand List Would you prefer brand name or generic products? Would you prefer brand name or generic products?

Law of Demand People will buy more of a product at a lower price than a higher price People will buy more of a product at a lower price than a higher price Why do you think this holds true? Why do you think this holds true?

Demand Schedule

A list of quantity of a product that people are wiling to buy at each price A list of quantity of a product that people are wiling to buy at each price At which price are consumers willing to buy the LEAST pizzas? At which price are consumers willing to buy the LEAST pizzas? ONLY PRICES WILL CHANGE QUANTITY DEMANDED ONLY PRICES WILL CHANGE QUANTITY DEMANDED

Quantity Demanded A movement along the Demand Curve that DOES NOT result in a shift. A movement along the Demand Curve that DOES NOT result in a shift. A price change simply moves you to a new point on the SAME curve A price change simply moves you to a new point on the SAME curve Demand Schedule Example Demand Schedule Example

Supply and Demand Graph

Demand Curve A downward sloping line A downward sloping line As one variable goes up, the other variable goes down As one variable goes up, the other variable goes down It slopes downward because consumers buy less at higher prices, more at lower prices The demand curve illustrates an inverse relationship between price & quantity The demand curve illustrates an inverse relationship between price & quantity

A Change in Demand A change in demand is determined by a factor in the Determinants of Demand A change in demand is determined by a factor in the Determinants of Demand The curve will either shift to the left (decrease) or right (increase) The curve will either shift to the left (decrease) or right (increase)

Demand Curve (Right Shift) Increases in Demand Curve will shift to the right Increases in Demand Curve will shift to the right

Demand Curve (Leftward Shift)

Determinants of Demand Consumer Tastes and Preferences Consumer Tastes and Preferences Potential Customers Potential Customers Money Income of Consumers Money Income of Consumers Substitute Goods Substitute Goods Complementary Goods Complementary Goods Price Expectations Price Expectations

Tastes & Preferences People have different tastes & preferences People have different tastes & preferences Food, Music, Clothes, etc Food, Music, Clothes, etc Advertising, Fashion, & Fads also influence your tastes and preferences for a good Advertising, Fashion, & Fads also influence your tastes and preferences for a good

Potential Customers A large number of consumers can produce a greater demand for the good A large number of consumers can produce a greater demand for the good

$ Income of Consumers If income increases, consumers will demand normal goods instead of inferior goods. If income increases, consumers will demand normal goods instead of inferior goods. Normal goods=luxury goods– brand names (i.e. Guess?, Levis, The Gap, Nordstroms) Normal goods=luxury goods– brand names (i.e. Guess?, Levis, The Gap, Nordstroms) Inferior goods=non-brand name goods (i.e. 99 cent store, Target, Outdoor Flea Markets) Inferior goods=non-brand name goods (i.e. 99 cent store, Target, Outdoor Flea Markets)

Substitute Goods If the price of one good increases, the consumer will be buy the alternative (or substitute) good, instead. If the price of one good increases, the consumer will be buy the alternative (or substitute) good, instead. This usually happens with similar products. This usually happens with similar products. If the price of a can of Coca-Cola increases to $2.00 while a can of Pepsi is $1.00 (and if you are indifferent between both), which one would you choose? If the price of a can of Coca-Cola increases to $2.00 while a can of Pepsi is $1.00 (and if you are indifferent between both), which one would you choose?

Complementary Goods Some goods go together. They will complement one another. Some goods go together. They will complement one another. If the price one complement good increases, the other good will also increase (vice versa). If the price one complement good increases, the other good will also increase (vice versa). Examples: Examples: --Cereal & Milk --Cookies & Milk --Peanut Butter & Jelly

Price Expectations If people expect that prices of a good will increase, it will (and vice versa). If people expect that prices of a good will increase, it will (and vice versa). This will result in a change in demand and shift the demand curve. This will result in a change in demand and shift the demand curve.