1. [ 3.1 ] Fundamentals of Demand

2. Demand
The law of demand explains consumer reaction to price increases and decreases. Paraphrase Restate the law of demand in your own words.

3. Income effect- more wealth, buy more

4. The Demand Graph
At this livestock auction, the law of demand is on clear display: As the price goes up, the number of willing buyers goes down, until finally there is only one bidder left.

5. The Demand Schedule
Both individual and market demand schedules record how changing prices affect quantity demanded. Analyze Data In these schedules, how much pizza does the market demand at $3 a slice?

6. Types of Demand Curves Individual Demand Curves Market Demand Curves
How much you personally are willing to spend on various quantities of an item
Market Demand Curves
Shows various quantities demanded by everyone who is interested in purchasing a product
To make a market demand curve: add the quantity demanded of 2 or more curves and keep prices column the same

7. Market Demand Curves
Create a market demand schedule based on these individual demand schedules:
Person A’s Demand Schedule
Person B’s Demand Schedule
Price
Quantity Demanded
$50 3
$40 5
$30 6
$20 7
$10 9
Price
Quantity Demanded
$50 2
$40 3
$30 4
$20 5
$10 6

8. Market Demand Schedule
Price
Quantity Demanded
$50 5
$40 8
$30 10
$20 12
$10 15

9. The Demand Graph
These graphs use the data from the individual and market demand schedules to show demand graphically. Analyze Graphs How much pizza does Ashley demand at $5 a slice?

10. Quiz: Demand
If James and his friends experience the substitution effect, they will respond to a rise in the price of their favorite post-game snack by
A. working extra hours to make more money.
B. buying less of their favorite snack.
C. buying more of their favorite snack.
D. choosing another snack food instead of their favorite snack.

11. Quiz: The Demand Schedule
The owner of a sandwich shop surveyed her customers on how often they came in, which sandwiches they preferred, and what quantity of sandwiches they ordered. She then added up the quantities demanded by all her consumers at each price. What did she create?
A. demand for sandwiches
B. a market demand schedule
C. the substitution effect
D. an individual demand schedule

12. Quiz: The Demand Graph
The difference between a market demand curve and an individual demand curve is that the market demand curve
A. provides data about only one consumer.
B. is curved and not straight.
C. provides data about many consumers.
D. is usually much shorter than an individual demand curve.

13. [ 3.2 ] Shifts in Demand

14. Know the Difference… Change in Quantity Demanded Change in Demand
Movement ALONG a demand curve
Changes in how many products are demanded at each price
Change in Demand
Shift of entire demand curve
People are now willing to buy different amounts of products at the same prices

15.  Change in Quantity Demanded
Change in Demand 

16. Change in Demand Entire Demand Curve Shifts
People willing to buy different amounts of products at same prices
5 categories of factors which may cause change in demand

17. Product becomes very popular  increases demand
1."Change in Taste"
Product becomes very popular  increases demand
Product looses popularity  decreases demand
Ex. Guitar Hero

18. D2 P 1."Change in Taste" [Direct] QD3 QD1 QD2 A decrease in taste
for videos results in a
decrease in demand.
An increase in taste
for DVDs results in an
increase in demand. D2 D1 D3 P
QD3
QD1
QD2

19. Shifts in the Demand Curve
Consumer Income-
When you make more money you can buy __________ products  increases demand
If you get a pay cut, you can buy __________ products  decreases demand
As income increases the demand for a normal good will increase.
As income increases the demand for an inferior good will decrease.

20. The Impact of a Change in Income
Higher income decreases the demand for an inferior good
Higher income increases the demand for a normal good 20

21. The Non-Price Determinants of Demand
An increase in income is likely to increase demand for so-called normal goods. At the same time, demand for certain goods—such as used cars—may go down as income goes up.

22. 3. Market Size (direct) (# of consumers) Increase in # of consumers
can increase/decrease from
economic decisions, advertising, and
government political decisions (China).
Ex: The large “baby boom” of
increased the demand for baby supplies.
An increase in life expectancy increased
demand for for medical care, retirement
communities, and nursing homes.
Increase in # of consumers

23. P 4. Expectations [of consumers]
[about future price, availability, & income]
If the iPod-Touch is expected to
increase in price from $295 to $450. D2 D1
iPod-Touch
What people think will happen in the future
People may choose to wait on newer, better products or wait and see if price will go down P
QD1
QD2

24. The Non-Price Determinants of Demand
Hispanic Americans are a growing demographic force in the U.S. Analyze Information How would you expect demand for goods intended to appeal to Hispanic Americans to change in the future?

25. Factors Affecting Demand
5. Substitutes
Products which can be used in place of others and are less expensive  increase demand
Products which are expensive and can be substituted  decrease demand
5. Complements
Related goods; use of one increases use of another
Ex. Increased popularity of Wii system  increased demand for Wii games

26. 5. Prices of Related Goods [Substitues-Direct; Complements-Inverse]
QD1
QD2
Substitute
[Direct]
Gangsta Grills
Chrysler 300s
Toyotas
MV X PQ

27. Complements - Inverse Boat Prices P Gasoline Demand D1 D2
[Decrease in price of one; increase in the “D” for the other]
Complements - Inverse P1 P2
QD1 QD2 D1 D2
Boat Prices P QD QD
Gasoline Demand
No change
in price
I’m making more money without dropping my prices.
They are so cheap that
even dogs are buying boats

28. [Increase in price of one; increase in “D” of the other]
Substitutes – Direct
[Increase in price of one; increase in “D” of the other]
Demand for
Microsoft’s Zune
Price of
iPod Video D2 D1 D P P2 P1
QD QD
QD2 QD1
1977, Bill was
arrested for
running a stop
sign and driving
without a license.

29. The Non-Price Determinants of Demand
The influence of social media has exploded in the 2000s. Analyze Data What evidence can you find that advertisers expect the influence of social media to continue growing?

30. Quiz: The Non-Price Determinants of Demand
Which answer best describes a normal good?
A. a good whose demand is unaffected by changes in price
B. a good whose price is unaffected by changes in demand
C. a good consumers demand less of as their incomes increase
D. a good consumers demand more of as their incomes increase

31. Activity Find a partner
Come up with two examples from two different categories of the factors which cause change in demand
Examples may increase or decrease demand
On two note cards, write only your examples and turn in

32. Activity Now, draw two new cards
Tape the cards under the correct category on the board
If the example increases demand, put it at the top
If it decreases demand, put it at the bottom
Check for correct examples and categories