1. Demand

2. Supply and Demand
Economics in a market economy, at its most basic & fundamental form is SUPPLY & DEMAND.

3. Economics from the perspective of the consumer
Demand Perspective
Economics from the perspective of the consumer

4. DEMAND
Quantity of goods and services that a consumer is WILLING and ABLE to purchase at various prices

5. Quantities Purchased at Various Prices
DEMAND – 3 Components
Able
Willing
Quantities Purchased at Various Prices

6. What does it mean to have demand for something?

8. Demand - Able
You must have enough money to make the purchase. If you can’t afford something (a private jet, for instance), you don’t have an effective demand for it.

10. DEMAND - Willing
You must be willing to make the purchase. If you’re not willing to spend your income on it, you do not have an effective demand for it.

11. DEMAND - Quantities purchased at Various Prices
Qty Demanded changes when price changes

12. Demand Schedule
List of quantities that would be purchased at various prices in table format

15. Demand Schedule Price $25 $30 $35 18 15 12 Quantity Purchased Weekly
$20
$25
$30
$35 21 18 15 12

16. Demand Curve Demand curve plots these (from Demand Schedule) points
Shows graphically the relationship between price & quantity demanded

17. Horizontal Axis - Quantity Demanded
Demand Curve
Vertical Axis - Prices
Horizontal Axis - Quantity Demanded

18. Law of Demand
Inverse Relationship Between Prices and Quantity Demanded:
Price Increases -> Less Quantity Demanded
Price Decreases -> More Quantity Demanded

19. Demand Curve (Inverse Relationship)
Price
Demand
Quantity

20. Reasons Why The Demand Line Is Downward Sloping
Why Qty Demanded & Price go in opposite directions

22. Marginal Utility Utility = Usefulness or Satisfaction
Marginal Utility is the amount of satisfaction derived from 1 additional unit of a product

23. Law of Diminishing Marginal Utility
As additional units of a product are consumed during a given period of time, the additional satisfaction derived from the good decreases

24. Law of Diminishing Marginal Utility
Price Willing to Pay
Qty

25. Proves Inverse Relationship between Prices and Quantity Demanded b/c…
At higher quantities, people want it less and so they’ll be less willing to pay higher prices

28. Income Effect
The effect that increasing or decreasing prices have on the purchasing power of your income

29. Income Effect Cont’d
What’s the Purchasing Power of $5 (your income) for the items on the dollar menu?
allows you to be able to purchase 5 items
What if the dollar menu became the half dollar menu?
What if the dollar menu became the $2 menu?
Price changes affect the buying power of your INCOME & thus your ability & willingness to purchase products

30. Proves Inverse Relationship between Prices & Quantity Demanded b/c…
At Higher Prices, people’s incomes will be ABLE to buy LESS

31. Substitution Effect
Change in the combination of goods purchased as a result of increasing or decreasing relative prices

32. Substitution Effect Cont’d
What might people do if the price of movie theater tickets go up to $25?
Go see more Plays
Get more Angel Tickets
Netflix Subscription
Rent more DVDs from Redbox

33. Proves Inverse Relationship between Prices & Quantity Demanded b/c…
At higher prices, people will substitute that product with cheaper substitutes

34. Homework: “Demand 3 Paragraphs”
Explain in your own words each in a separate paragraph
The Income Effect
Diminishing Marginal Utility
The Substitution Effect
Each of the paragraphs must include an ORIGINAL example that is explained

35. Determinants of Demand

36. Change in Quantity Demanded v. Change in Demand

37. Change in Quantity Demanded
Caused by an increase or decrease in PRICE for that G or S
Causes movement ALONG the demand line
Point A P1
Price
Point B P2
QD1
QD2
Quantity Demanded/Purchased

38. Change in Demand
Caused by 1 or more determinants of demand, NOT a change in price for that g or s
Causes a shift of the ENTIRE demand line
Price D2 D1
Quantity Purchased/Demanded

39. Determinants of Demand
Demand changes even if there is no change in price
It will shift the entire demand line

40. The Determinants Consumer income Consumer attitude
Price of a complimentary product
Price of a substitute
Population
Weather
Expectations

41. Change in Income
Generally, an increase in income leads to an increase in demand. This is b/c consumers are more willing and able to buy more products
Write 3 things you would buy if you received a raise to $20/hr

43. Cont’d
Normal goods- Demand increases as income increases. D decreases as income decreases
Inferior goods- Demand decreases as income increases. D increases as income decreases Ex. Ground Meat

44. Change in Income Cont’d
If someone who was unemployed for 2 yrs finds employment at a solid-paying job, what will happen to his/her demand for normal goods?
What will happen to his or her demand for inferior goods like canned goods from a generic producer?

45. Changing Attitudes
Tastes and Preferences
Trends
Fads

46. Changing Attitudes Cont’d
List in your notes 5 examples of trends and fads that have come and gone or are currently in but you expect will end in the near future

47. Trends/Fads That Have Come and Gone

48. Change in Price of a Complementary Good
Complementary goods- Separate products that are used together. If 1 goes on sale, you buy it & buy its’ complement
List 4 Examples

49. Complementary Goods Cont’d
If the price of peanut butter was to increase, what would happen to the qty demanded for peanut butter?
Qty Demanded for Peanut Butter will DECREASE
What will happen to the demand for Jelly?
Demand for Jelly will DECREASE

50. Complementary Goods Cont’d
If the price of Hot Dogs decreases, what will happen to the qty demanded for Hot Dogs?
Qty Demanded for Hot Dogs will INCREASE
What will happen to the demand for Hot Dog Buns?
Demand for Hot Dog Buns will INCREASE

51. Change in Price of a Complementary Good Cont’d
If qty demanded changes (up or down) for an original good, then the demand changes for the complimentary good in the SAME way

52. Complementary Goods Cont’d
In Price for an Original Good
Qty Demanded for the Original Good
Demand for the Complementary Good
The OPPOSITE of each is TRUE

53. Change in Price of a Substitute
Substitute goods- Products similar enough they can replace the other
List 4 Examples

54. Substitute Goods Cont’d
If the price of margarine goes up, what will happen to the qty demanded for margarine?
Qty demand for margarine will DECREASE
What will happen to the demand for butter?
The demand for butter will INCREASE

55. Changing Price of Substitute
If qty demanded changes (up or down) for an original good, then the demand changes for the Substitute good in the OPPOSITE way

56. Substitute Goods Cont’d
In Price for an Original Good
Qty demanded for the Original Good
Demand for the Substitute Good
The OPPOSITE of each is TRUE

57. Change in # of Buyers
Changes to population #s is a determinant of demand. Why? In your notes, explain why population changes would have an effect on demand. Use 1 example and explain it.

58. Weather
Weather is a determinant of demand. Why? In your notes, explain why weather would have an effect on demand for many products. Use 1 example and explain it.

59. Expectations For Future Income
When consumers are pessimistic about their future incomes, the overall level of demand for goods and services in the economy decreases. The opposite is true.

60. = = Expectations Cont’d Expectations for Future Income
Demand for goods and services =
Expectations for Future Income
Demand for goods and services =

61. Expectations for Future Prices
Expectations Cont’d
Expectations for Future Prices
When people expect a G or S to drop in price in the future. . .
When people expect a G or S to increase in price in the future. . .

62. In Times Past Really Good White Beans Existed Expectations Income
Tastes & Preferences
Related Goods
Change in Price of Substitute Goods
Change in Price of Complementary Goods
Weather
# of Buyers
Expectations

63. Expectations for Future Prices
Expectations Cont’d
Expectations for Future Prices
When people expect a G or S to drop in price in the future. . .
When people expect a G or S to increase in price in the future. . .

64. Demand Shifts & Elasticity of Demand

67. The Determinants of Demand change demand at EVERY price
This can be represented on a Demand Graph

68. Graph: Increase in Demand - Right
Using your first graph and a pencil, draw a second line that would represent an INCREASE in demand. Name this line D2

69. Graph: Decrease in Demand - Left
Using your second graph and a pencil, draw a second line that would represent a DECREASE in demand. Name this line D2

70. Hold up the appropriate shift that represents the effect of the comeback of bell-bottoms

71. Demand Curve: Tastes and Preferences
Price D2 D1
Quantity

72. Hold up the appropriate shift that represents the effects of a job demotion due to a business consolidation

73. Decrease in Demand: Income
Price D1 D2
Quantity

74. The price of Pepsi goes up
The price of Pepsi goes up. Hold up the appropriate shift that represents effect on Coca-Cola

75. Substitutable Goods: Demand will go up for Coke
Price D2 D1
Quantity

76. Price Elasticity of Demand
Draw two graphs (both on the same side of the paper), one with a steep slope and one with a gradual slope

77. Elasticity
Elasticity means RESPONSIVENESS
We measure responsiveness

78. Price Elasticity of Demand
Measurement of how responsive the quantity purchased changes when there is a change in price

79. Price Elasticity of Demand Cont’d
Equation:
% change in quantity demanded
% change in price

80. Demand Elastic
There are products where if the price changes, the Qty Demand will change SIGNIFICANTLY.
These products are said to have ELASTIC demand

81. Elastic Demand
Price is elastic if calculated value of price elasticity (equation) is greater than one

82. Products W/ Elastic Demand
Non-necessity
Movie Theater Tickets
There are readily available substitutes for the product
Cereal
The product’s cost represents a large portion of consumers’ income
Car

83. Elastic Demand
Price D
Quantity

84. Inelastic Demand Inelastic implies less sensitivity to change in price
Price inelastic if calculated value of price elasticity (equation) is less than one
As the price of a good increases the quantity demanded decreases minimally

85. Products w/ Inelastic Demand
A Necessity
Tap Water
There are few or no readily available substitutes for the product
Gasoline
The product’s cost represents a small portion of consumers’ income
Candy

86. Inelastic Demand
Price D
Quantity

87. Unitary Price Elasticity (Unit Elastic)
% change in the quantity demanded equals % change in price

88. Total Revenue Total amount of money a company receives from its sales
Total Revenue = price x quantity sold
Quantity sold is dependent on price

89. Relationship between Price, Elasticity, Total Revenue
Elastic Demand
Inelastic Demand
Decreasing Price Increases Total Revenue
Decreasing Price Decreases Total Revenue
Increasing Price Decreases Total Revenue
Increasing Price Increases Total Revenue