CH 4: DEMAND 4-1: WHAT IS...
Transcript of CH 4: DEMAND 4-1: WHAT IS...
CH 4: DEMAND
4-1: WHAT IS DEMAND?
Notes
LEARNING TARGETS
• I will demonstrate an understanding of the law of
demand, and demand vs. quantity demanded.
• I will demonstrate an understanding of the factors
that shift demand.
WHAT IS DEMAND?
• Demand is the willingness to buy a good or
service and the ability to pay for it
• Must have both elements for demand to exist
LAW OF DEMAND
• The law of demand states that when price
decreases, quantity demanded increases and that
when price increases, quantity demanded
decreases
• There is an inverse relationship
DEMAND SCHEDULE
• A demand schedule is a table (or listing) of how
much of an item an individual is willing to purchase
at each price
Price Quantity Demanded
$1 50
$2 40
$3 30
$4 20
DEMAND CURVE
• Demand curve (D): graphically shows the data
from a demand schedule
Q
P
D
INDIVIDUAL DEMAND SCHEDULE
• What can we learn from an individual demand
schedule?
• How much of an item one person is willing and
able to buy at a specific price
INDIVIDUAL DEMAND SCHEDULE
Price (per DVD) Quantity Demanded
$5 7
$10 4
$15 3
$20 2
$25 1
$30 0
INDIVIDUAL DEMAND CURVE
• According to the chart, I am not willing nor able
to buy any DVDs at $30
• But, I am willing and able to buy 7 DVDs if they
are $5 each
INDIVIDUAL DEMAND SCHEDULE AND CURVE
• Use the data below to create an individual demand curve
for DVDs
INDIVIDUAL DEMAND SCHEDULE AND CURVE
• Note: the vertical axis is always price (P) and the
horizontal axis is always quantity (Q) demanded
(of a particular product)
DRAW YOUR INDIVIDUAL DEMAND CURVE
MARKET DEMAND SCHEDULE
• A market demand schedule a listing of how much
of a good or service all consumers are willing to
purchase at each price
• Purpose: Business owners need a market
demand schedule in order to price a good to gain
the maximum number of sales
MARKET DEMAND SCHEDULE
Price (per DVD) Quantity Demanded
$5 300
$10 175
$15 150
$20 125
$25 100
$30 50
MARKET DEMAND SCHEDULE
• What can we learn from a market demand
schedule?
• At $30 quantity demanded is 50 DVDs
• At $5 quantity demanded is 300 DVDs
DRAW A MARKET DEMAND CURVE
4-2: WHAT FACTORS
AFFECT DEMAND?Notes
LAW OF DIMINISHING MARGINAL UTILITY
• The marginal benefit of using each additional
unit of a product during a given period of time will
decline
• Why?
HOW DOES THIS AFFECT THE
DEMAND CURVE?
• The demand curve slopes downward because an
individuals’ utility, or overall satisfaction,
decreases as they obtain more of a good or
service
EXAMPLE OF THE LAW OF DIMINISHING
MARGINAL UTILITY
• On a hot day, the ice cream truck comes through
your neighborhood
• You will most likely receive the most satisfaction
from the first ice cream bar you purchase rather
than the second, third, or fourth
WHY DO CONSUMERS DEMAND MORE GOODS
AND SERVICES AT LOWER PRICES AND
FEWER AT HIGHER PRICES?
• 2 reasons:
• 1. Income effect: the change in the amount that
consumers will buy because the purchasing
power of their income changes
• If you make more money you might consume
more expensive goods (and vice versa)
• 2. Substitution effect: change in the amount that
consumers will buy because they buy substitute
goods instead
• A different cereal brand is on sale, so you
substitute that for the one you normally buy
EXAMPLE
• Tara goes to the mall to buy a $50 pair of designer
jeans and discovers they are on sale for $35. If
Tara decides to buy 2 pairs, is this an example of
the income effect or the substitution effect?
• Answer: Income effect because the lower price of
the jeans increased the purchasing power of
Tara’s income
DEMAND VS. QUANTITY DEMANDED
• Demand: the curve that represents the schedule of
quantities consumers are willing and able to buy at
each price
• Quantity demanded tells us how much will be
bought at a specific price (a point on the
demand curve)
DEMAND VS. QUANTITY DEMANDED
DEMAND VS. QUANTITY DEMANDED
• A change in price changes quantity demanded—
this refers to movement along the demand curve
• A change in anything other than price that affects
the demand curve changes the entire demand curve
—this causes a shift in demand
GRAPHICALLY, WHAT DOES THIS MEAN?
DEMAND SHIFT FACTORS
• 1. Income: as income increases/decreases it
affects a person’s ability to purchase goods and
services
• When consumer incomes increase, they demand
more normal goods
• Example: new car, TV, etc.
DEMAND SHIFT FACTORS
• When consumer income increases, they demand
less inferior goods
• Examples: used books, off-brands
DEMAND SHIFT FACTORS
• 2. Market size/population: if the number of
consumers increases or decreases it also affects the
market size
• Example: a significant increase in population in
the Southwest will increase demand for housing
• Example: A decrease in population in a city would
decrease demand for housing
DEMAND SHIFT FACTORS
• 3. Consumer tastes/preferences: when a good/service is popular, consumers demand more of it at all prices
• When the product becomes less popular, consumers demand less of it
• Example: if turkey burgers become more popular because they are healthier, demand will increase
• Example: if skateboarding becomes less popular, demand will decrease
DEMAND SHIFT FACTORS
• 4. Consumer expectation of price: future
expectations can affect today’s buying habits
• If consumers believe the price of a good will
increase in the future, they consume it now
• If consumers believe the price of the good will be
decrease in the future they will wait to consume it
DEMAND SHIFT FACTORS
• Example: if you believe the price of a DVD will
increase in the future, you will buy it now—shifting
demand to the right (an increase in demand)
• Example: if you believe the price of shoes will
decreases in the future, you will buy them later—
shifting demand to the left (a decrease in demand)
DEMAND SHIFT FACTORS
• 5. Substitute goods: goods and services that can be
used in place of each other
• If the price of a substitute good drops, people will
buy that good and not the original item
• Example: The price of Kroger brand cereal drops so
we consume that rather than the higher priced name
brand
DEMAND SHIFT FACTORS
• 6. Complementary goods: goods that are used
together
• An increase in the demand for one good increases
the demand for the complementary good
• Example: an increase in the demand for hamburgers
increases the demand for ketchup
WHAT DO THE GRAPHS
FOR DEMAND LOOK
LIKE?
DRAWING THE GRAPH
AN INCREASE IN DEMANDP
Q
S1
D1
D2
Q1 Q2
P1
P2
DRAWING THE GRAPH
A DECREASE IN DEMANDP
Q
S1
D2
D1
Q2 Q1
P2
P1