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Determinants of Demand

Determinants of Demand. Review: Change in Quantity Demanded. Price. D1. Quantity. On to … Determinants of Demand. DETERMINANTS OF DEMAND. Changes in income Changes in the prices of related goods Substitutes: goods that can replace one another

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Determinants of Demand

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  1. Determinants of Demand

  2. Review: Change in Quantity Demanded Price D1 Quantity

  3. On to … Determinants of Demand

  4. DETERMINANTS OF DEMAND Changes in income Changes in the prices of related goods Substitutes: goods that can replace one another Compliments: goods that are consumed together Changes in the size or composition of the population Change in price expectations Changes in tastes/preferences

  5. Practice Problem #1 What would happen to the demand of pizza if you find out pizza causes heart disease? Determinant? Increase or decrease in demand?

  6. Answer to Practice Problem #1 What would happen to the demand for pizza if you find out that pizza causes heart disease? Determinant - A change in consumer tastes/preferences; consumer expectations Decrease in demand

  7. Practice Problem #2 What would happen to the demand of Nike shoesif it is the favorite shoe of many sports celebrities? • Determinant? • Increase or decrease in demand?

  8. Answer to Practice Problem #2 What would happen to the demand of Nike shoesif it is the favorite shoe of many sports celebrities? • Determinant – A change in consumer tastes/preferences • Increase in demand

  9. Practice Problem #3 • A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). • Determinant? • Increase or decrease in demand of Red Bull?

  10. Answer to Practice Problem #3 • A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). • Determinant – A related good (substitute) • Decrease in demand of Red Bull

  11. Practice Problem # 4 • Student allowances and the minimum wage for work increases. • Determinant? • Increase or decrease in demand of video games?

  12. Practice Problem # 4 • Student allowances and the minimum wage for work increases. • Determinant – Income increase • Increase in demand of video games

  13. Movement Along a Demand Curve Versus a Shift of the Curve Remember there is a difference between quantity demanded and demand. Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether. A change price creates a change in the quantity demanded, other things constant. This causes a movement along the demand curve. Achange in one of the determinants of demandcauses a change in demand. This causes in a shift of a demand curve. Or a new curve.

  14. What determinants would increase the market demand for pizza?

  15. Determinants Increasing Demand • Increases in income • Increases in population • Increase in prices of substitute goods • Decrease in price of complement goods • Consumer expectation that prices will increase in the future • Improvement in taste • Increased consumer preferences

  16. Determinants of increased demand change the story….. How so? Original Story New Story

  17. How would determinants of increased demand change the picture of demand? $15 12 b 9 Price per pizza 6 3 0 D1 8 14 20 26 32 Millions of pizzas per week

  18. Increased Market Demand for Pizza $15 12 b f 9 Price per pizza 6 3 0 D1 8 14 20 26 32 Millions of pizzas per week D2

  19. What determinants would decrease the market demand for pizza?

  20. Determinants Decreasing Demand • Decreases in income • Decreases in population • Decrease in prices of substitute goods • Increase in price of complement goods • Consumer expectation that prices will decrease in the future • Deterioration of taste • Decreased consumer preferences

  21. Determinants of decreased demand change the story….. How so? Original Story New Story

  22. How would determinants of decreased demand change the picture of demand? $15 12 b 9 Price per pizza 6 3 0 D1 8 14 20 26 32 Millions of pizzas per week

  23. Decreased Market Demand for Pizza $15 j b 12 9 Price per pizza 6 3 0 D2 D1 8 14 20 26 32 Millions of pizzas per week

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