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DEMAND

DEMAND. Definition: The various quantities of a good or service that someone is WILLING and ABLE to buy at DIFFERENT PRICES at a PARTICULAR TIME WILLING and ABLE Does Mr. Hayward have demand for…?:. YES!. NO!!!. NO!. Individual Demand vs. Market Demand.

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DEMAND

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  1. DEMAND • Definition: The various quantities of a good or service that someone is WILLING and ABLE to buy at DIFFERENT PRICES at a PARTICULAR TIME • WILLINGand ABLE • Does Mr. Hayward have demand for…?:

  2. YES!

  3. NO!!!

  4. NO!

  5. Individual Demand vs. Market Demand • I may not have demand for a porsche, but others do… • Market Demand – Sum of all individual’s demand

  6. Demand Schedule Grade Upgrade Certificates

  7. Graphing Demand Demand Schedule Demand Curve

  8. Law of Demand • As Price increases, Quantity Demanded decreases • As Price decreases, Quantity Demanded increases As P↑, Qd↓ As P↓, Qd↑

  9. Nature of Demand Curve • Diminishing marginal utility • What would compel you to buy additional JBCs?

  10. Change in Quantity Demanded • Income Effect • Buying power • Substitution Effect • Pepsi vs. Coke

  11. Change in Quantity Demanded

  12. Change in Demand • Change in Income mo’ money = mo’ problems purchases normal vs. inferior • Change in Prices and Availability of Substitutes ex: Pens and Pencils • Change in Prices and Availability of Complements ex: Paper and Pencils • Change in Weather or Seasons ex: Shorts in winter, Sleds in summer, Gas? • Change in Number of Buyers ex: larger/smaller market, population change, technology • Change in Styles, Tastes, Habits, Preferences fashion, coolness, trends – ex: • Change in Expectations future oriented – ex: harvest, technology

  13. Individual Demand Demand Can Increase or Decrease P 6 5 4 3 2 1 0 Individual Demand Increase in Demand P Qd $5 4 3 2 1 10 20 35 55 80 Price (per bushel) D2 D1 Decrease in Demand D3 Q 2 4 6 8 10 12 14 16 18 Quantity Demanded (bushels per week) 3-14

  14. Individual Demand Demand Can Increase or Decrease P 6 5 4 3 2 1 0 Change in Demand Individual Demand P Qd Change in Quantity Demanded $5 4 3 2 1 10 20 35 55 80 Price (per bushel) D2 D1 Decrease in Demand D3 Q 2 4 6 8 10 12 14 16 18 Quantity Demanded (bushels per week) 3-15

  15. Elasticity • Measurement of a good’s responsiveness to a change in price • The price effect is greater for some goods than for others • Examples:

  16. Elasticity • Large Price Effect → Elastic Ex: • Small Price Effect → Inelastic Ex: Other Examples?

  17. Factors Affecting Elasticity • Time: • Can purchase be delayed? • Time to adjust… • Longer price change persists = more elastic • Immediately after price change = more inelastic • Availability, Suitability, Price of Substitutes • More/better/cheaper substitutes = more elastic • Ex: Ibuprofen vs. Insulin • Percentage of Budget • Larger % = more elastic • Ex: New Car for me vs. LeBron James

  18. Testing for Elasticity • Graphical Comparison The flatter the curve, the more Elastic the good. The steeper the curve, the more Inelasticthe good. Elastic Inelastic

  19. Testing for Elasticity • Total Revenue Test --- TR = P x Q • Example: • If P and TR move in the same direction, demand is inelastic • If P and TR move in opposite directions, demand is elastic • Hot Dogs? • Gas?

  20. Extending Elasticity • How does elasticity of demand affect us? • What do these have in common? • Government taxes inelastic goods… • Why doesn’t govt. tend to tax elastic goods?

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