DemandDemandSection 1
I want I want I wantI want I want I want
What is demand?
It is the desire, ability and willingness to buy a product
It is a microeconomic concept, which means:◦The part of economics that deals with behavior and
decisions making by SMALL units, such as individuals
◦ It helps to explain how prices are determined and decisions are made
So why should I know before?So why should I know before?
As consumers we are smarter when we research
As investors we are also smarter when we research
It is essential to understand how a market economy works ◦To know what is popular and not so much◦What people are charging◦Is there a need for the product, etc.
◦ It is important for sound business planning
Where is the demand!!!!
The more demand the better
You will not start a ski shop in Hawaii
Law of demandLaw of demand
States that the quantity of a good or service varies inversely to price
So in other words, price and quantity have an opposite relationship
So, when price goes up, demand goes downWhen price goes down, demand goes up
Price is an obstacle because it discourages people from buying or doing something
High prices are an obstacle
Its time to graph!!!Its time to graph!!!
A demand schedule, is a listing that shows various quantities demanded of a particular product at all possible prices that might prevail in a market at any time
It shows what an individual is willing to purchase
Most people would buy more of something as the price gets lower
Draw One
Market Demand ScheduleMarket Demand Schedule
Also a table but reflects how much of a good or a service all consumers are willing and able to buy at each price in the market
The CurveThe Curve
Demand curve, is the demand schedule shown graphically as a downward sloping line
It is a graph showing the quantity demanded at each and every price
It is represented as DDThe price is the Y or vertical side of the
graphThe demand for the product is the X or
horizontal side
Market Demand CurveMarket Demand Curve
This is a curve that shows the quantities demanded by everyone who is interested in purchasing the product
For our purposes in this class the market will be small
Shows the data found in a market demand schedule and shows the quantity that all consumers are willing to buy
Law of Diminishing Marginal Law of Diminishing Marginal UtilityUtility
Popularity of a product is based on utility, or useful or satisfaction that someone gets from using the product
Diminishing marginal utility, the extra satisfaction someone gets from the product starts to diminish or go away
We are not likely to purchase some things for a 2nd, 3rd or 4th time
Types of demand changesTypes of demand changes
When the price of something goes up you buy less of it because you feel poorer
This is called the income effect, there is a change in quantity demanded because of a change in price that alters consumers’ income
So what is the next option?So what is the next option?
Well, many people may buy a Bon Jovi CD or song instead of a concert ticket because they can afford that
This is called the substitution effect, people substitute a lower priced item for another for instance generic name brands
Change in Quantity DemandedChange in Quantity Demanded
A change in the amount of a product that consumers will buy because of a change in price
Each change in quantity demanded is shown by a new point on the demand curve
Second type of changeSecond type of change
Change in demand causes a shift in the demand curve because people are now willing to buy different amounts of the product at the same price
Why the change? Depends, sometimes a change in consumers tastes’, income, price of related goods (substitutes and compliments), consumer expectations and market size
The more demanded the shift to the right, less shift to the left
Changes in ExpectationsChanges in Expectations
Bad weather?Terrorist attacks?
Section 2
What affects the way we What affects the way we purchase?purchase?
AdvertisingTrendsNew productsChanges in season
For example: healthier lifestyle, typewriter versus computer, fuel efficient cars, baseball season
Do I Buy? Do I need it?Do I Buy? Do I need it?
Elasticity of demand, refers to how responsive consumers are to a price changes in a marketplace
Fat PantsFat Pants
Sometimes demand is referred to as being elastic
It means a change in price causes a change in the quantity demanded (either up or down)
When demand is elastic you can see a relatively large change in demand
Ex. Fresh veggies
InelasticInelastic
Inelastic means a given change in price causes relatively small changes in demand
Ex. Salt, if the price is cut in half people are not going to run out and purchase large amounts of salt and vice versa
Other examples, doctors, tobacco, gas, alcohol
Test elasticityTest elasticity
PDA’s go on saleIf price goes down 20% and quantity
demanded goes up 30% , then the demand is elastic
Reason: the percentage change in the quantity demanded is greater than the percentage change in price
Unit ElasticUnit Elastic
The change in price and quantity demanded are the same
How do we determine a products How do we determine a products elasticity?elasticity?
1. urgency or need- can the purchase be delayed….is it a luxury or a necessities
Example would be insulin2. adequate substitutes available- if yes the
consumer can switch back and forth when prices change
3. does the purchase use large amounts of money?
Demand for salt is inelastic b/c a container is less than a $,a car would be different
Take a TestTake a Test
Total revenue is the amount of money a company receives for selling its products
Total revenue test- compare total revenue a business would receive when offering its product at various prices
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