1. Determinants of Demand

2. Review: Change in Quantity Demanded Quantity Price D1

3. Normal vs. Inferior Goods Income Effect: 1.Normal Goods – goods we demand more of when our incomes rise. 2.Inferior Products – goods that consumers buy less when our incomes rise. Similar to substitute goods (used in place of each other) - high gas prices - Drive vs. ride bus

4. Energy Drinks & Tacos Work is small groups to brainstorm other factors besides price that determines whether you are WILLING and ABLE to purchase a particular good or service.

5. Answers Substitute/complimentary goods Income Taste & preferences Changes in the size or composition of the population Changes in expectations

6. Question How might the demand for energy drinks change if the student population of the school increases dramatically? How might the demand for energy drinks change if another vending machine that offered soft drinks was available?

7. On to … Determinants of Demand

8. Demand vs. Quantity Demanded Change in QD is a change in PRICE only! (data or story does not change – movement along the line) TODAY – changes in DEMAND not QD! A change in demand is a change in one of the determinants of demand.

9. DETERMINANTS OF DEMAND  Changes in income (normal & inferior goods – new vs. used car)  Changes in the prices of related goods  Substitutes: goods that can replace one another (dial-up internet vs. high speed)  Compliments: goods that are consumed together  Changes in the size or composition of the population  Change in price expectations  Changes in tastes/preferences

10. What does this mean? If these factors change the willingness and ability of consumers to purchase a good or service, then this will cause a change in the demand schedule….which creates a whole new demand curve (a whole new picture) Not all determinants influence the same way. BOTTOM LINE….there will be a new demand curve!

12. Practice Problem #1 What would happen to the demand of pizza if you find out pizza causes heart disease? Determinant? Increase or decrease in demand?

13. Answer to Practice Problem #1 What would happen to the demand for pizza if y ou find out that pizza causes heart disease? Determinant - A change in consumer tastes/preferences; consumer expectations Decrease in demand

14. Practice Problem #2 What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities? Determinant? Increase or decrease in demand?

15. Answer to Practice Problem #2 What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities? Determinant – A change in consumer tastes/preferences Increase in demand

16. Practice Problem #3 A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). Determinant? Increase or decrease in demand of Red Bull?

17. Answer to Practice Problem #3 A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). Determinant – A related good (substitute) Decrease in demand of Red Bull

18. Practice Problem # 4 Student allowances and the minimum wage for work increases. Determinant? Increase or decrease in demand of video games?

19. Practice Problem # 4 Student allowances and the minimum wage for work increases. Determinant – Income increase Increase in demand of video games

20. Movement Along a Demand Curve Versus a Shift of the Curve Remember there is a difference between quantity demanded and demand. Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether. A change in price creates a change in the quantity demanded, other things constant. ▫ This causes a movement along the demand curve. A change in one of the determinants of demand causes a change in demand. ▫ This causes in a shift of a demand curve. Or a new curve.

21. What determinants would increase the market demand for pizza?

22. Determinants Increasing Demand Increases in income Increases in population Increase in prices of substitute goods Decrease in price of complement goods Consumer expectation that prices will increase in the future Improvement in taste Increased consumer preferences

23. Determinants of increased demand change the story….. How so? Quantity demanded of pizza per week (by millions) Price of pizza 15$15.00 20$12.00 25$9.00 30$6.00 35$3.00 ---$0.00 Quantity demanded of pizza per week (by millions) Price of pizza 9$15.00 14$12.00 19$9.00 25$6.00 30$3.00 ---$0.00 Original StoryNew Story

24. 814202632 Millions of pizzas per week $15 12 9 6 3 0 Price per pizza D1 How would determinants of increased demand change the picture of demand? b

25. 814202632 Millions of pizzas per week $15 12 9 6 3 0 Price per pizza D1 Increased Market Demand for Pizza D2 fb

26. What determinants would decrease the market demand for pizza?

27. Determinants Decreasing Demand Decreases in income Decreases in population Decrease in prices of substitute goods Increase in price of complement goods Consumer expectation that prices will decrease in the future Deterioration of taste Decreased consumer preferences

28. Determinants of decreased demand change the story….. How so? Quantity demanded of pizza per week (by millions) Price of pizza 5$15.00 10$12.00 15$9.00 20$6.00 25$3.00 ---$0.00 Quantity demanded of pizza per week (by millions) Price of pizza 9$15.00 14$12.00 19$9.00 25$6.00 30$3.00 ---$0.00 Original StoryNew Story

29. 814202632 Millions of pizzas per week $15 12 9 6 3 0 Price per pizza D1 How would determinants of decreased demand change the picture of demand? b

30. b D2 Decreased Market Demand for Pizza 814202632 Millions of pizzas per week $15 12 9 6 3 0 Price per pizza j D1D1