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Demand

Demand. Demand and Supply Game. Place a value of each token Black = 50 cent Red = 20 cent. Price rises when quantity supplied is scarce and demand increases. Price decreases when quantity supplied increases and as a result demand increases. Demand.

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Demand

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  1. Demand

  2. Demand and Supply Game Place a value of each token Black = 50 cent Red = 20 cent

  3. Price rises when quantity supplied is scarce and demand increases Price decreases when quantity supplied increases and as a result demand increases

  4. Demand • The amount consumers desire to purchase at various prices at any given time • Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy

  5. Effective Demand • Consumers must be willing to buy AND be capable of paying the price set by the supplier

  6. Law of Demand If Price rises – Quantity demanded falls P Q If Price falls – Quantity demanded rises P Q

  7. Individual Demand • Individual Demand Schedule Lists the different quantities of a good that an individual consumer is prepared to buy at each price

  8. Market Demand • Market Demand Schedule Lists the different quantities of a good that all consumers in the market are prepared to buy at each price. It is derived by adding together all the individual demand schedules for the good

  9. Demand Schedule(Demand for coffee monthly)

  10. Demand Curve • At higher prices, consumers are generally willing to purchase less than at lower prices • Demand curve is said to have a negative slope - downward sloping from left to right

  11. Point Price per g Market Demand A 20 cent 700 kilogrammes Price (cent per g) Demand A Quantity (kilogrammes: 000s)

  12. Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes Price (cent per g) B A Quantity (kilogrammes: 000s)

  13. Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammes C Price (cent per g) B A Quantity (kilogrammes: 000s)

  14. Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammes D 80 cent 200 kilogrammes D Price (cent per g) C B A Quantity (kilogrammes: 000s)

  15. Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammes D 80 cent 200 kilogrammes E 100 cent 100 kilogrammes E D Price (cent per g) C B A Quantity (kilogrammes: 000s)

  16. An Increase in Demand D1 D2 P Price Q1 Q2 Quantity

  17. A Decrease in Demand D2 D1 P Price Q2 Q1 Quantity

  18. Factors affecting the demand for a good The Demand Function Dx = f ( Px, Pog, Y, T, E, G, U)

  19. The Demand Function Dx = f ( Px, Pog, Y, T, E, G, U) • Px = Goods which obey and do not obey the Law of Demand • Pog = Price of Complimentary Goods and Cost of Substitute Goods • Y = Income of consumer • T = Consumer tastes and preferences • E = Consumers expectations regarding future prices • G = Government regulations • U = Unplanned factors

  20. Demand for a good depends on its own priceIf price rises quantity demanded fallsIf price falls quantity demanded rises P 2 P 1 Q 2 Q 1 Quantity Demanded

  21. Demand for a good depends on the price of other goods • Complimentary Goods Goods which are used jointly. The use of one involves the use of the other - E.g. bread and butter, cars and petrol • Substitute Goods Goods which satisfy the same needs and thus can be considered as alternatives to each other – E.g. Coke and Pepsi or Tea and Coffee

  22. Complimentary Goods D 1 D 2 D 2 D 1 An increase in price of a complementary good causes the demand for good X to fall An fall in price of a complementary good causes the demand for good X to rise

  23. Substitute Goods (The Substitute Effect) D 2 D 1 D 1 D 2 An increase in price of a substitute good causes the demand for good X to rise An fall in price of a substitute good causes the demand for good X to fall

  24. Demand for a good depends on level of income (The Income Effect) • Normal Goods A normal good is a good with a positive income effect. A rise in income causes more of it to be demanded, while a fall in income causes less of it to be demanded • Inferior Goods An inferior good is a good with a negative income effect. A rise in income causes less of it to be demanded, while a fall in income causes more of it to be demanded

  25. Normal Goods D 2 D 1 D 1 D 2 An fall in income causes the demand for a normal good to fall from D1 to D2 A rise in income causes the demand for a normal good to increase from D1 to D2

  26. Inferior Goods D 1 D 2 D 2 D 1 An increase in income causes the demand for an inferior good to fall from D1 to D2 A decrease in income causes the demand for an inferior good to rise from D1 to D2

  27. Demand depends on Consumer Tastes • If the movement in taste or preferences is in favour of the good it causes an increase in demand which shifts the demand curve to the right • If the movement in taste or preferences is against the good it causes a fall in demand which shifts the demand curve to the left

  28. Movement in Taste D 2 D 1 D 1 D 2 A movement in taste against a good causes demand to fall A movement in taste in favour of a good causes demand to increase

  29. Demand for a good depends on the expectations of consumers • Demand for a good will shift to the right if consumers expect: • The price of good X to be higher in the future e.g. property • A scarcity of good X in the future e.g. oil • Their incomes to be higher in the future e.g. promotion • Demand for a good will shift to the left if consumers expect: • The price of good X to be lower in the future • A plentiful supply of good X in the future • Their incomes will be lower in the future

  30. Consumer Expectations D 2 D 1 D 1 D 2 Demand for Good X will fall if consumers expect lower future prices, abundance or lower future incomes Demand for Good X will rise if consumers expect higher future prices, scarcity or higher future incomes

  31. Demand for a good depends on government regulations • If the government implement a programme which reduces consumption of a particular product than demand for this good will be affected • E.g. The smoking ban / educational campaign to reduce alcohol consumption.

  32. Government Regulations Example: The Smoking Ban D 1 D 2 If the government implement a policy to restrict consumption demand for Good X will fall

  33. Demand for a good depends on unplanned factors If there is a sudden heat wave – an unplanned factor – this may result in an increase in demand for sunscreen and a decrease in the demand of home oil If flash floods occur across the country – an unplanned factor – this may result in an increase in the demand for Wellingtons.

  34. Unplanned Factors Factors such as weather can effect the demand for goods – e.g. a sudden heat wave would increase the demand for sunscreen D 2 D 1

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