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A Lesson on Demand

A Lesson on Demand. What is Demand?. Willing and able to purchase a product at a particular price How many of you would like a Porsche [or like vehicle]? How many of you are able? What’s the difference between willing and able?

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A Lesson on Demand

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  1. A Lesson on Demand

  2. What is Demand? • Willing and able to purchase a product at a particular price • How many of you would like a Porsche [or like vehicle]? • How many of you are able? • What’s the difference between willing and able? • Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

  3. Demand Schedule • A table that lists at various prices, the number of items demanded • Demand Curve – the graphic representation of demand • Graphing a Demand Schedule: • The lower left quadrant is “0” • The vertical axis is price • The horizontal axis is quantity Graph the numbers from the Lollipop Demand Schedule

  4. Example: Demand for Lollipops

  5. Law of Demand • As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases • P QD

  6. Demand Curve for Coffee Beans

  7. Change in Quantity Demanded vs. Change in Demand • Change in Quantity Demanded: • Caused by change in own price of good • Movement along the curve • Change in Demand: • Caused by Change in determinant of demand • Shift to new demand curve

  8. Demand Determinants • Income • Normal Good: a good for which demand increases as consumer incomes rise (milk) • Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides) • As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

  9. Determinant - Income

  10. Determinants con’t • Preference/Taste • Likes and dislikes in consumption • Consumer Expectations • Change in future price of goods • Change in future income • Population Change • As the number of consumers in a market changes the demand will change

  11. Determinants con’t • Consumer Expectations • Change in future price of goods • Change in future income

  12. Determinants con’t • Population Change • As the number of consumers in a market changes the demand will change

  13. Determinants con’t • Prices of Related Goods • Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke) • Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)

  14. Determinants con’t • Related Goods Compliments Substitutes

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