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The Demand curve

The Demand curve. Define ‘Demand’ Diagrammatically show the law of ‘Demand’ Explain the determinants of ‘Demand’ Understand the difference between a ‘shift in’ and a ‘movement along’ a demand curve. What is Demand?. The amount that consumers are willing and able to buy at a given price.

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The Demand curve

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  1. The Demand curve • Define ‘Demand’ • Diagrammatically show the law of ‘Demand’ • Explain the determinants of ‘Demand’ • Understand the difference between a ‘shift in’ and a ‘movement along’ a demand curve.

  2. What is Demand? • The amount that consumers are willing and able to buy at a given price.

  3. Draw two axis!X= quantityY = price

  4. Think! • How will the amount that people wish to buy change as the price changes. • Now, draw that relationship on the axis. Label it Demand.

  5. Hopefully… Price Demand Quantity

  6. The relationship • Normally there is an inverse relationship between the price of a good, and the amount that consumers demand. • ‘Normal goods’

  7. Why is the Demand curve there? And not here? Or here? Demand

  8. Factors that affect Demand • Number of consumers • Consumer tastes and preferences • Consumer incomes • Interest rates • Price of compliments • Price of substitutes

  9. Demand for new cars • Relative price of second hand cars • Interest rates • Availability of credit • Price of petrol etc • Price of public transport • Taxes etc

  10. Effective demand • Desire to buy is backed up by the ability to pay.

  11. Latent Demand • The consumer wants the good, but does not have the financial clout to actually buy • Aston Martin cars: Big latent demand!

  12. Derived Demand • Often the demand for a product is dependent upon the demand for another product, • E.g. Bricks:

  13. Inferior goods • Not all goods follow the law of demand. These are called inferior goods. • There are two types Giffen goods Veblin goods

  14. Giffen goods • Usually thought of as poor quality food stuffs. • The price goes up, so they can’t afford the other things they used to supplement it with, so buy more of the basic thing instead. Rice

  15. Veblin goods • People like some things because they are expensive. Often thought of as the ‘snob effect.’

  16. Complimentary demand • Demand for two products is linked. • E.g. Mobile phones and network phone calls.

  17. Shifts in demand

  18. What causes the demand curve to shift? • A change in any of those determinants of demand, will lead to a new demand curve. • A change in price will lead to a movement along the existing demand curve.

  19. Contractions and expansions Price Contraction of demand Demand

  20. Contractions and expansions Price Expansion of demand Demand quantity

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