A Picture is Worth a Thousand Words: Demand Unit 2 Lesson 8

One day you are shopping with your friends, and you walk into a small greeting-card shop close to school to buy a birthday card for one of your relatives. While you are checking out the cards, you overhear the owner complaining that a certain style of card is not selling, and the display of that card is taking up precious space in the small store. “Unfortunately, I bought these cards up front and they cannot be returned,” he says. As the store owner looks over to you and your friends, he continues: “I learned in my economics class in high school that a person shouldn’t cry over spilt milk or let costs incurred in the past influence future choices-right?” It becomes obvious that the owner is soliciting a response from you.

Do you support the owner’s view, or do you suggest an alternative course of action? Suggestions Lower the price of the cards. Put them on sale. Place the cards in a more prominent place in the store. Donate the cards to charity. Advertise the value of sending greeting cards. If you are going to throw them again, at least recycle them.

Why do businesses put items on sale? To sell more merchandise. To reduce surplus merchandise and avoid throwing away items that may still have value. To increase consumer demand.

When business people put products on sale, they are attempting to predict consumer behavior. They are predicting that the number of products bought will increase at lower prices. That is not the only possible way to increase sales, of course. If the owner could change his customers’ perception of value for the cards, the customers also would buy more. Changing customers’ perceptions is one of the purposes of marketing through advertising.

Kramer and Newman try to sell used records to a dealer who is buying them. He offers what they believe to be an insulting offer. This shows that value is determined by both scarcity and desire; without demand, even a rare commodity has no value.

King-Sized Candy Bar Candy Bars Suggested PriceQuantity Demanded.50¢.75¢ $1.00 $1.50 $1.75 $2.00 $2.50 $2.75 $3.00

King-Sized Candy Bar Candy Bars Suggested PriceQuantity Demanded

Determinants of Demand

Shift in Demand How did your buying decision change after you learned more about chocolate and had the I.O.U. option? How do the two graphs of demand for candy bars compare?

Shifts in Demand The demand for cars when people get a tax refund. – Shift Right The demand for gloves after the first snow storm. – Shift Right The demand for hot dogs when the price of hot dog buns rises. – Shift Left The demand for gasoline today when people expect prices to fall tomorrow. – Shift Left

Closure Objectives 1.Explain the relationship between price changes and the quantity consumers are willing and able to buy. – The law of demand states that consumers will tend to buy less of a good or service at higher prices and more at lower prices. 2.Graph an example of a consumer demand schedule. 3.Predict how various events/conditions will shift demand. – That people economize – That people respond to incentives in predictable ways – That all choices involve costs 4.Use the law of demand to predict consumer behavior in the marketplace. – The concept of demand can be used to forecast what consumers will do when prices change or when variables that affect the actual demand for a product change and create a new price-quantity relationship. Concepts 1.Demand – A schedule (or graph) showing how many units of a good or service buyers are willing and able to buy at all possible prices during a period of time. 2.Determinants of Demand – Factors other than the price that change (shift) the demand schedule, causing consumers to buy more or less at every price. Factors include income, number of consumers, preferences, and prices of related goods. 3.Price – The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or services.