A Lesson on Demand

What is Demand?  Willing and able to purchase a product at a particular price  How many of you would like a Porsche [or like vehicle]?  How many of you are able?  What’s the difference between willing and able?  Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

Example: Demand for lolipops Totals

Demand Schedule  A table that lists at various prices, the number of items demanded Demand Curve – the graphic representation of demand Graphing a Demand Schedule: 1.The lower left quadrant is “0” 2.The vertical axis is price 3.The horizontal axis is quantity Graph the numbers from the Lollipop Demand Schedule

Law of Demand  As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases  PQD Price per gallon of water Bottles per week $JoPat

Change in Quantity Demanded vs. Change in Demand  Change in Quantity Demanded:  Caused by change in own price of good  Movement along the curve  Change in Demand:  Caused by Change in determinant of demand  Shift to new demand curve

Demand Determinants  Income  Normal Good: a good for which demand increases as consumer incomes rise (milk)  Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides)  As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

Determinants con’t  Preference/Taste  Likes and dislikes in consumption  Consumer Expectations  Change in future price of goods  Change in future income  Population Change  As the number of consumers in a market changes the demand will change

Determinants con’t  Prices of Related Goods  Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke)  Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)