Activator - Demand · Demand Understanding Demand Demand –desire, ability, and willingness to buy...
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Activator - Demand • Three people enter a Mazda dealership all interested in buying a brand new car. All three initially stop to look at the Mazda RX8. 1. The first person tells the salesperson that they “really like the RX8” but they “don’t have any money today”, and are “saving their money for a purchase within the next 6 months”. 2. The second person tells the dealer that they “have the money to buy”, they “are going to ultimately buy RX8” , but they are shopping various dealerships and are “not willing to buy today”. 3. The third person tells the dealer that they “love the RX8!”, they “have the money” and they “want to buy it today.” 1. List each customer (1-3). Next to each customer, write each of the following that apply to their situation: 1. Desire to buy 2. Willingness to buy 3. Ability to buy Customer Desire Willingness Ability 1. 2. 3.
Transcript of Activator - Demand · Demand Understanding Demand Demand –desire, ability, and willingness to buy...
Activator - Demand
• Three people enter a Mazda dealership all interested in buying a brand new car. All three initially stop to look at the Mazda RX8.
1. The first person tells the salesperson that they “really like the RX8” but they “don’t have any money today”, and are “saving their money for a purchase within the next 6 months”.
2. The second person tells the dealer that they “have the money to buy”, they “are going to ultimately buy RX8”, but they are shopping various dealerships and are “not willing to buy today”.
3. The third person tells the dealer that they “love the RX8!”, they “have the money” and they “want to buy it today.”
1. List each customer (1-3). Next to each customer, write each of the following that apply to
their situation:
1. Desire to buy
2. Willingness to buy
3. Ability to buy
Customer Desire Willingness Ability
1.
2.
3.
DemandUnderstanding Demand
Demand – desire, ability, and willingness to buy a good/service
The amount of a product that a consumer (individual) or group of
consumers (market) will purchase at a given price
Microeconomics – The study of the economic behavior and decision
making of small units, such as individuals, families, and firms (businesses)
Application Chart – Demand Indicate 3 items that you want on one side, whether
you can afford them or not in the next, and whether you are willing to buy them in the last.
Desired Items Willingness Ability/Afford Demand
1.
2.
3.
The Law of Demand
• Law of Demand –prices are
lower, consumers will buy more;
prices are higher, consumers will
buy less.
– Inverse relationship between
price and the QD of a
product.
– Prices influence the amount
of something that we are
willing to purchase
Demand
Quantity
Demanded
Increases
Price
Prices of
Products
Decreases
Price
Prices of
Product
Increases
Demand
Quantity
Demanded
Decreases
Change in Quantity Demanded
$3.50 $1.00
Change in Quantity Demanded
$3.50 $1.00
Change in Quantity Demanded
$3.50 $1.00
The Income Effect Income Effect – the change in consumption resulting from a
change in price, “more bang for your buck” Consumers feel richer when prices drop, poorer when prices rise. Both
affect the Quantity Demanded of a product.
$44.50 x 0
The Income Effect
$44.50 $19.50
Substitution Effect Substitution Effect – when consumers react to an increase in
a good’s price by consuming less of one good and more of other goods
$3.99 $4.99 $3.99
The Demand Schedule
Price of Ice
Cream
Quantity
Demanded
$3.00 0
2.50 2
2.00 4
1.50 6
1.00 8
.50 10
.10 12
• Demand Schedule - a table that lists the quantity of a good that an
individual will purchase at each price in a market
•Market Demand Schedule - lists the quantity of a good that all consumers
will purchase at each price in the market
Price of Ice
Cream
Quantity
Demanded
$3.00 0
2.50 30
2.00 50
1.50 100
1.00 200
.50 300
.10 400
Application - The Demand Curve
Price per Ice Cream Cone
1.50
2.00
2.50
$3.00
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12
Quantity Demanded of Ice-Cream Cones per week
Price Quantity
$3.00 0
2.50 2
2.00 4
1.50 6
1.00 8
.50 10
.25 12
• Plot the points of the following schedule on the graph
• Demand Curve - graphically represents the demand schedule
• Demand Curve is downward sloping because of the law of demand
Demand Curve AssignmentPrice Bottles Bought Per
Week
3.00
2.50
2.00
1.50
1.00
.50
.25
Price Student 1 Student 2 Student 3 Student 4 Student 5 Totals
3.00
2.50
2.00
1.50
1.00
.50
.25
.25
.50
1.00
1.50
2.00
2.25
2.50
1.25
1.75
2.75
3.00
.75
.25
.50
1.00
1.50
2.00
2.25
2.50
1.25
1.75
2.75
3.00
.75
Demand Curve Assignment• Explain why the curve is downward sloping
• Give an example of a time that you experienced the income effect
• Give an example of a time that you experienced the substitution effect
• A ____________________________ is a table that lists the quantities of
a good/service a person will buy at each price that may be offered in the
market.
• A ____________________________ is a table that lists the quantities of
a good/service all consumers will buy at each price that may be offered
in the market.
• A ____________________________ is a graphical representation of a
demand schedule
• The __________________________ effect is the change in
consumption resulting from a change in price, which affects a person’s
purchasing power
• The __________________________ effect is the change in
consumption resulting from a change in price of a related product, when
a person can replace one item with another.
Law of Demand, Inversely related
Demand Schedule
Market Demand Schedule
Demand Curve
Income
Substitution
Coach L’s Demand CurvePrice (P)
Quantity Demanded (QD)
$44.50
$19.90
0 6
b
a
Movement Along the Demand Curve
• Movement – is caused by a change in the price of a product
• Changes the quantity demanded of a product
0
P
QD
D
0
P
QD
D
$100
$10
$100
$10a
b
10 100 10 100
b
a
What Could Change in Coach L’s Life That Could Affect His Demand For Express Clothing?
Income
Buying a different Brand
Having a Child
What Could Change in Coach L’s Life That Could Affect His Demand For Express Clothing?
Income
Buying a different Brand
Having a Child
Where is my Demand?
New Express Demand
P
QD
P
QD
Price 2003
$40.00 0
35.00 4
30.00 6
25.00 8
20.00 10
15.00 12
10.00 14
Playoffs
8
10
14
16
18
22
24
Changes in Demand
Price per Ticket
20.00
25.00
30.00
$40.00
15.00
10.00
0 2 4 6 8 10 12 14 16 18 20 22 24
Quantity Demanded of Tickets
35.00Next Season
0
0
2
4
8
10
12D D1D2
Shifts of the Demand Curve
Changes in Demand
are reflected as a shift
in the curve
Shifts to the right
indicate an increase in
demand
Shifts to the left
indicate a decrease in
demand
D
D1
0
Increase
in demand
Price
Quantity Demanded
D2
Decrease
in demand
1. Consumer Income Consumer Income – The amount of money a consumer has can affect their
willingness to purchase certain items.
Examples:
Normal good – Express For Men (Name Brand)
Inferior good – Wal-Mart Brand (Generic Brand)
Normal Good Inferior Good
Consumer Income
0
P
QD
D D1
P
QD
D1 D
Consumer Income
0
P
QD
DD1
P
QD
D1D
2. Price of Related Goods Price of related goods – demand for goods can be affected by the
price for related goods
Examples:
Complements - Iphone and Case
Substitutes - Gatorade and Powerade
0
P
QD
D
0
P
QD
D
Complementary Products
D1
0
P
QD
D
0
P
QD
D
Substitute Products
3. Consumer Tastes
Consumer Tastes and Advertising – changes in popularity
changes the “dollar vote” of the consumer
Examples:
Popularity decreases - 80’s band Poison
Popularity increases - Drake
Consumer Tastes
QD
D D1
P
P
QD
D1 D
4. Consumer Expectations Consumer Expectations – the way people anticipate
changes in products, technology or the economy Example:
Iphone 5 to the Iphone 6
Changes in body styles of cars
Consumer Expectations
QD
D D1
P
P
QD
D1 D
5. Number of Buyers (Population)
Population – an increase/decrease in the number of consumers
Increase in population - Georgia Florida weekend, Super Bowl, Olympics
Decrease in population - Detroit, loss of 1 million people
Number of Buyers (Population)
0
P
QD
D D1
P
QD
D1
D
The Determinants of DemandConsumer
Income
Tastes Expectations Price of
Related
Goods
Population
Demand Application Worksheet
1. How did the income effect influence her purchases?
2. How did the substitution effect apply to this scenario?
She felt richer like she had more “bang for her buck”.
Substituted Abercrombie for Hollister.
a. Which way is the curve sloping? Explain why.
b. Is a price change reflected as movement along the curve or a shift in the curve? What is the difference?
Downward. Inverse relationship b/w p and qd
Movement. A shift is a true change in demand, whereas a change in qd is because of a change in price.
a. Which way did the curve shift when Jack increased his hours over the summer?
b. What allowed him to increase his consumption of Express for Men shirts?
c. What does the shift in the curve indicate in this scenario?
Right.
More hours led to more income.
Increase in demand.
a. What initially made her interested in Guacamole Ice Cream?
b. Which way did the curve shift after Publix ran the ad for free Salsa flavored sprinkles; what does a shift in that direction show?
c. How might the ad for free Salsa affect the market demand for Guacamole Ice Cream?
d. Which way did the curve shift after her job was terminated; what does a shift in that direction show?
e. Which of the determinants of demand were utilized in this scenario? Explain how.
Advertisement on cspan.
Right. Increase in demand.
Increase in the market demand.
Left. Decrease in demand.
Income, price of related goods (complement), tastes, expectations.
Difference Between Movement (Change in Quantity
Demanded) and a Shift (Change in Demand)• QD (Movement) - A change in the amount a consumer will purchase as a result of a
change in price
• Ceteris paribus – all other things constant, all things remaining the same
– Reflected as movement along the curve
• D (Shift) – A change in the amount a person will buy as a result of an outside factor (change in ceteris paribus - popularity of product, consumer income, etc.), not having to do with price
– Reflected as a shift
1000
P
QD
D
$100
$10
10
b
a
1000
P
QD
D
$100
$10
10
b
a
Headline Demand Shift?
(Y/N)
Does the curve shift
Left/Right? Or did it
cause movement
along the curve?
Increase/Decrease
in Demand, or
Change in
Quantity
Demanded?
New
Curve (A
or C), or
N/A.
Determinant(s) of
Demand (Income,
Population, Price of
Related Product,
Expectations, Tastes) or
Not Applicable.
1. Millions of Immigrants
Swell U.S. Population
2. The Price of a lb. of
Beef Doubles
3. Consumer Income for
U.S. consumers falls for
3rd straight month
4. Surgeon General Warns
That Eating Beef is
Hazardous to Your
Health
Yes Right Increase C Population
No Movement QD N/A N/A (price)
Analysis of the Beef Market
Yes Left Decrease A Income
Yes Left Decrease A Tastes/Expectations
Headline Demand Shift?
(Y/N)
Does the curve shift
Left/Right? Or did it
cause movement
along the curve?
Increase/Decrease
in Demand, or
Change in
Quantity
Demanded?
New
Curve (A
or C), or
N/A.
Determinant(s) of
Demand (Income,
Population, Price of
Related Product,
Expectations, Tastes) or
Not Applicable.
5. Price of Beef to Rise
Next Month
6. Price of Beef to Fall
Next Month
7. The Price of lb. of Beef
falls by 50%
8. Free Buns With Every
lb. of Beef at Local
Publix
Yes Right Increase C Expectations
Yes Left Decrease A Expectations
No Movement QD N/A N/A (price)
Yes Right Increase C Related goods
Flow Chart – Determinants of Demand – pgs. 85 - 87
Consumer
Income
Consumer
Expectations
Population Consumer Tastes
and Advertising
Price of Related
Goods
What Causes a Shift?
Example of Decrease Demand
An individual’s income goes
down. Decrease in demand for name brand products;
increase in demand for
generic.
Example of Decrease Demand
Example of Decrease Demand
Example of Decrease Demand
Example of Decrease Demand
Example of Increase Demand
An individual gets a an increase in income. Increase
in demand for name brand
products; decrease for generic.
Example of Increase Demand
Example of Increase Demand
Example of Increase Demand
Example of Increase Demand
If an individual expects price of
the bike to rise in the future, their
demand will increase today.
If an individual expects the price of the bike to go
down in the future then their
demand will decrease today.
Return of soldiers from WW2 led to a baby boom,
which increased demand for baby
products.
If a population decreases, then their will be a decrease in demand for
housing, automobiles, food,
etc.
Bell-bottomed jeans were at one time
very popular.
Any product that goes out of style
can be affected by consumer tastes and a decrease in
demand.
Snowboards will experience an
increase in demand if the price of skis goes up, making the two goods substitutes.
Ski boots are considered
complements for skis. If Ski boots
are too expensive,
demand for skis will decrease.
Price IncreaseI still buy
(need)
Price IncreaseI will not buy
(want)
Elasticity of Demand
1. List an item that you would buy less of if the price increased.
2. List an item that you would buy more of if the price decreased.
3. List an item that you would continue to buy, even if the increased.
Price IncreaseI still buy
(need)
Price IncreaseI will not buy
(want)
Inelastic vs. Elastic Demand Curve
Elasticity of Demand
Elasticity of Demand –how consumers will cut back or increase
their quantity demanded for a product when prices rise or fall
Measures the extent to which changes in price causes changes in
quantity demanded.
Helps determine how much a price change will influence the qd of
any given product
Elasticity of demand
0
P
QD
D
P2
P1
0
P
QD
D
P2
P1
Elastic Demand
Elastic – consumption changes
drastically when a price rises or
falls
A consumer is very responsive to
price changes
Elastic Demand Curve
0
P
QD
D
115,900
40,000
10,000
10 100
Inelastic Demand
Inelastic - changes in price causes a
relatively small change in quantity
demanded
Consumers continue to purchase
regardless of price change
Inelastic Demand Curve
0
P
QD
D
$3.00
1.50
.50
2 3
Determinants of Demand Elasticity1. Need vs. a Want
• Medicine versus a luxury automobile
2. Availability of Substitutes
• Pepsi/Coke, Butter/Margarine
3. Importance of the Product
• How much you spend on a good
• Table salt versus designer clothes
4. Time Horizon
• Longer time horizon – more elastic
• Gas in the short run is inelastic,
but over time elastic
Elastic Products Inelastic Products
Item Elastic/Inelastic Determinant
Insulin for a diabetic
Heinz 57 Tomato Sauce
Food
Polo Brand Clothing
Cigarettes
Inelastic Need/No Available Substitutes
Elastic Want/ Available Substitutes
Inelastic Need
Elastic Want
Inelastic Need
