Recap

• Scarcityàallocateresourcesbypricemechanism(assumefreemarketeconomy)àDD&SS!

• DD&SSàdetermineeqmPandQ

• Butwhatwillaffectdemand(non-pricefactors)?

WhatdoyouthinkarethedemandfactorsthatresultinchangeinPandQinthesemarkets?

FactorsthatshifttheDDcurve 4.13

4.7NON-PRICEDETERMINANTSOFDEMAND

4.7.2ChangesinTastes&Preferences• FashionorFads

• Advertising

• GovernmentPolicies&Action

• ChangesinSeasons&Weather

P-TIDE

4.15Letusstartwithfactorsthataremorestraightforward

(ii)AdvertisingEffectiveandsuccessfuladvertising•  Createwantsateverypricelevel,shiftingthedemandcurveout

4.15

(iii)GovernmentPoliciesandAction4.15

(iv)Changesinseasons&weather,festivals4.15

StrongdemandforicecreamduringhotEuropeansummerhelpsboostUnileversales-thisismoney.co.uk,15October2015ConsumergoodsgiantUnilever,whichownstheMagnumandBen&Jerry’sbrands,postedbetterthanexpectedsalesafteroneofthehottestsummersinEuropeonrecordsawitcashinonstrongdemandforicecream.

WhatarethegoodsthatwillincreaseindemandduringChineseNewYear?

WhatarethegoodsthatwillincreaseindemandduringValentine’sDay?

Insummary,tastesandpreferencesisabroadcategorisationofanumberoffactorsthatinfluencesconsumerlikesanddislikesandhencetheirdesireorwillingnesstobuytheproductfromthemarket

ChangesinDDisinfluencedbychangesinincome.

4.7.3ChangesinConsumerIncome

P-TIDE

4.15

ChangesinincomeaffectstheABILITYoftheconsumerstopurchaseagood

2TypesofGoodsNormalGood

↑Incomeè↑Demand

InferiorGood↑Incomeè↓Demand

4.16

Remember:it’salwaysrelative!

Caféfood Hawkerfood

4.16

Finedining

NormalGoodsorInferiorGoods?

OriginalHigherIncomeIncome

NormalGood

• Agoodforwhichdemandispositivelyrelatedtochangesinincome

• ↑inincomeè↑indemand,illustratedbyarightwardshiftofthedemandcurve&viceversa

QQ1

Price

Quantity

P

DDDD1

4.16

Note:TodetermineP&Q,weneedbothDD&SS.DrawingofDDcurvesaloneisforteachingpurpose.

HigherOriginalIncomeIncome

InferiorGood

• Agoodforwhichdemandisinverselyrelatedtochangesinincome

• ↑inincomeè↓indemand,illustratedbyaleftwordshiftofthedemandcurve&viceversa

Q1Q

Price

Quantity

P

DD1DD

4.16

Note:TodetermineP&Q,weneedbothDD&SS.DrawingofDDcurvesaloneisforteachingpurpose.

Changesinthedemographics(populationsizeandprofile)ofacountryaffectdemandforgoodsandservicesovertime.

P-TIDE

4.17

4.7.4Demographics

P-TIDE

4.17

4.7.4Demographics

(i)Population/MarketSize

Singaporefacesanagingpopulationàdemandforhealthcare,walkingsticks,wheelchairs,oldagehomesetc.willprobablyincrease!

4.17

(ii)AgeComposition4.7.4Demographics

Ifthereisagrowingimbalanceoffemalesovermales,thedemandforcosmetics,fragrances,femaleclothing&beautysalonservicesislikelytoincrease.

4.17

(iii)GenderComposition4.7.4Demographics

Demographicsisakeyfactorthatinfluencesnotjustconsumers’tastesandpreferencesbutalsothepotentialmarketsize,aswellasdemandformanyproductsovertime.

P-TIDE

4.18

4.7.5ChangesinExpectations

(i)Changesinexpectedincome

Ifyouexpectapayraise,youaremorelikelytospendratherthansave!

Whatifyouexpectapaycutorjobloss?

4.18

4.7.5ChangesinExpectations

(ii)Changesinexpectedprice

Tobuyornottobuy?!

Whatifyoufoundoutthatthepricewillfall

intwoweeks?

You’dprobablypostponeyourpurchase!

Changesinexpectationsmayhavelittleimpactifthegoodisperishable.

Why?ThinkaboutValentine’sDay…

4.18

4.7.5ChangesinExpectations

(iii)Changesinspeculativedemand

Checkpoint!Turntopage4.19Explainthat2factorsthatresultintheriseindemandfor‘eldersitter’services

Factor Evidence

TasteandPreference–festiveseason&convenience

‘morepeopleareusingsuchservicesbecause…breakfromnursinghomes…’‘familymembersandcaregiversatthehomeneedhelp…busywithfestivepreparations‘inhomecareisattractiveasitisconvenient’

Analysis:Demandforeldercareserviceincreasesduetochangeintasteandpreferenceduringfestiveseason.Asmorepeoplebringseniorshomeforbreaksandneedhelptotakecareforseniorsduringfestiveseasons.Inaddition,inhomecareismoreconvenientforthelessmobileseniorscomparedtodaycareservices.Theseincreasethedesirabilityofsuchservices.

Checkpoint!Turntopage4.19Explainthat2factorsthatresultintheriseindemandfor‘eldersitter’services

Factor Evidence

Demographics ‘careprovidersattributeriseindemandfortheirservicestoageingpopulationandtheprevalenceofnuclearfamilies….’

Analysis:Demandforeldercareserviceincreasesduetochangeindemographics,wherethereisanageingpopulationinSingapore.Aselderlyaremorelikelytoneedcareandcompanionship,marketsizeforsuchservicesincreases.

FactorsthatshifttheDDcurve 4.13

4.7NON-PRICEDETERMINANTSOFDEMAND

P-TIDE

4.144.7.1ChangesinPriceofRelatedGoodsSUBSTITUTES COMPLEMENTS

SUBSTITUTES

Alternativesperceivedtosatisfythesamewant

E.g.Tea&Coffee;Books&e-Books

4.14

COMPLEMENTS

4.14

Usedjointlyasapackagetosatisfywants.

e.g.Mobilesandsubscriptionplans;laptopsandinternet.

P-TIDE

4.14

4.7.1ChangesinPriceofRelatedGoods

• Achangeinthepriceofonegoodcancauseashiftinthedemandofanothergood.

• ThedirectionoftheshiftinDDwilldependonhowthe2goodsarerelated.

Fig5(i):Changesinthepriceofsubstitutes

DDforeBookswillincreaseifthereisanincreaseinpriceofbooks

PriceofBooks

PA0

PA1

QA1QA0

DD

B

A

QuantityofBooks

Priceofe-Books

DDNODDN1

Quantityofe-Books

PN0

QNQN1

OriginalDemand

4.14

ReferringtoFigure5(i),anincreaseinthepriceofBooksfromPA0toPA1causesitsquantity demanded to fall fromQA0 toQA1 (represented by amovementfrompointAtoBalongDDA),duetoLawofDemand.Given thatBooksande-Booksareclosesubstitutessince theybothsatisfy thesame consumer want, when price of Books increases, consumers will switchfrombuyingBookstoe-Books.Thisswitchtoe-Bookscausesthedemandfore-Bookstoincrease(i.e.shiftindemandcurve)fromDDN0toDDN1

NOTE:ClarityinAnalysis!

DDformobilephoneswillincreaseifthereisafallinpriceofsubscriptionplans

Priceofsubscriptionplan

PSP1

PSP0

QSP0QSP1

DD

A

B

Quantityofsubscriptionplans

Priceofmobilephones

DDMPODDMP1

Quantityofmobilephones

PMP0

QMP0QMP1

OriginalDemand

Fig5(i):Changesinthepriceofcomplements4.14

Q4.Isthedemandforcarsandpetrolcomplementsorderiveddemand?Why?

• Acarandpetrolareincomplements.

• Petrolisneededtopowerthecar,hencebothgoodsmustbeusedtogetherforconsumerstobeabletodrivetosatisfytheirwantofgettingfrompointAtoB.

• Therefore,ariseinthepriceofcarsislikelytoreducethedemandforpetrol.

•  Itisnotderiveddemandaspetrolisnotusedintheproductionofcars.

4.14

End123456789101112131415161718192021222324252627282930

riceofrelatedgoods

astes&Preferences

ncome

emographics

xpectations

SUMMARY

Demand=willingnessandabilitytopurchaseQdx=f(Pricex,P,T,I,D,E,….)

Changeinquantitydemanded

Changeindemand

Movementalongthedemandcurve

Shiftingofthewholedemandcurve

SUMMARY 4.18

TRYIT!

Drawtheimpactofanincreaseinincomesonthedemandforbubbletea.

End123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960

THEENDAnyBurningquestions?Youcanalsopostlecture

feedback

TinyURL.com/hv9lozv