DEMAND

1. DEMAND Chapter 4

2. The Law of Demand • Demand- the willingness to buy a good or service and the ability to pay for it. • Demand is also desire for a good/service but you hafta pay for it • Demand- the amounts of a product consumers are willing and able to purchase at each price • _______ is the major factor that influences demand

3. The Law of Demand • States that when prices go down, quantity demanded increases. When prices go up quantity demanded decreases. • P Q • P Q • This is an inverse or negative relationship

4. Demand Schedule • Is a listing of how much of an item an individual is willing to purchase at each price. • Basically it’s a table

5. Market Demand Schedule • Is a listing of how much of an item all consumers are willing to to purchase at each price. • How do we get these numbers? • Lets do one.

6. Demand Curves • Graphically show the data from a demand schedule • Market demand curve-same as above only for a market

7. Vera Wang • Frustrated when she couldn’t find the wedding dress she wanted. • Created her own style of wedding dresses- more sophisticated gowns (no puffed sleeves or lace flounces) • Celebrities • She created a demand for these sophisticated style dresses • Top wedding dress maker in the country

8. Why do demand curves slope downward? • Law of diminishing marginal utility- the marginal benefit of using each additional unit of a product during a given period will decline. • Or- each buyer get less and less satisfaction from another unit consumer- so price must fall for consumers to want to buy more. • Break it down: • Marginal= one more • Utility= satisfaction

9. Patterns of consumer behavior • Income effect- the change in the amount consumers buy because their income changes • Or- a lower price increases the purchasing power of a buyers money--- so you can afford to buy more- the dollar goes farther. • Exs? • Buy more books at 7 dollars than 15. (feel $8 richer)

10. Patterns of behavior • Substitution effect- buying a substitute good when the item you originally wanted is more expensive. • Buy a magazine b/c the hardback book cost was too high • Give ‘em some examples

11. Change in Demand • Occurs when something (determinants of demand) prompts consumers to buy different amounts at every price. • Shifts the demand curve right or left • Ex. High unemployment prompts consumers to by less goods at each price level.

12. Shifts • Shift to the left___________ • Shift to the right__________

13. Change in Quantity Demanded • Is an increase or decrease in the amount demanded because of a change in price. • This is just a move from one point to another on the demand curve • We are NOT moving the curve

14. Income -----Yeah Money • Income changes peoples ability to buy things (goods/services) • Snow remover-get less snow- smaller paycheck- can’t buy as many baseball cards ----Demand curve shifts to the ________?

15. Some goods… • Normal goods- goods that consumers demand more of when their incomes rise • Luxury cars • Examples? • Inferior goods- goods that consumers demand less of when their incomes rise • Examples? • Ramen noodles

16. Number of Buyers (Market Size) • The number of consumers increases or decreases the demand • The more people in a market or area of the country the demand for products generally goes up • Baby boom- retirement communities increased

17. Consumer Tastes and Preferences • Popular goods are in high demand • Unpopular goods that aren’t cool are demanded less • Tastes change quickly • Clothing (What’s In)

18. Consumer Expectations (Expected Prices) • Your expectations of how much a product will cost in the future determines if you buy it now or later. • Expectations that gas will be going up leads to people trying to “beat” the price rise which increases demand.

19. Substitute Goods • Are goods and services that can be used in place of each other. • Products are interchangeable • An increase in the price of one good will increase the demand for the second good (substitute) • Example…. • Ben & Jerry’s and Blue Bunny Ice cream

20. Complementary Goods • Goods that are used together, so a rise in demand for one increases the demand for the other • If the price of one product changes, demand for both products will change in the same way. • They go together • Cd’s and CD players

21. Some add another determinant • Environmental, timing, or season • Time of the year affects demand • Christmas trees in July • Snow blowers in FL

22. Determinants of Demand • TIN-SE • In the night pumpkins explode • Others???????? • Incomes • Number of Buyers • Tastes/preferences • Consumer expectations/ Expected prices • Price of related goods (Complements/Substitutes)

23. That’s It Ya’ll

24. Section 3 Elasticity of Demand

25. Elasticity of Demand • Elasticity of Demand- a measure of how responsive consumers are to price changes • Markets are sensitive to changes in price, but not all increases in price result in a decrease in demand.

26. Elasticity of Demand • Demand is Elastic if quantity demanded changes significantly as price changes. • The more responsive to change the market is the more likely the demand is elastic. • Demand is Inelastic if quantity demanded changes little as price changes. • Change in price have little impact on the quantity demanded.

27. How to remember? • How in the world can I remember elastic and inelastic?????????? • Think a rubber band….. • When the quantity demanded increases by a lot, the demand is elastic and the rubber band stretches. • Quantity demanded barely changes—demand is inelastic and rubber band stretches very little.

28. Real life examples??? • Goods that have a lot of substitutes are elastic • Why? • Elastic--? • Food • Inelastic--? • Insulin • NE football tickets

29. Elasticity continued • Elasticity of demand for products can change • If we get more substitutes, then, demand might become more elastic. • Cell service –more elastic with more providers • Products are withdrawn, then, there is less to choose from & demand becomes inelastic.

30. Here’s a picture

31. How to remember it? • Inelastic- looks like an I • Elastic- :looks like an E P P D D C C

32. Unit Elastic • Demand is unit elastic when the percentage change in price and quantity demanded are the same. • If the price goes up 10% then the quantity demanded will drop exactly 10 % • No good or service is ever really unit elastic

33. What determines elasticity?Factors/determinents • 1. Substitute goods or services? • No substitute demand tends to be inelastic • Many substitutes tends to be elastic

34. What determines elasticity • 2. Proportion of Income • The percentage of your income that is spent on goods/services affects elasticity • Ex. Photography=hobby • If the price of camera chips, and fancy lenses goes up, then, you probably won’t spend money on it-elastic • But if the price of pencils, or pens rose, you still would buy what you need for school-inelastic

35. What determines elasticity • 3. Necessity Versus Luxuries • Demand for necessities tend to be inelastic • But people don’t always buy the same quantities they may use substitutes • Luxuries are not essential to your life • Luxury demand tends to be elastic

37. How to figure Elasticity of Demand • Total Revenue- a company’s income from selling its products • Total Revenue Test- a method of measuring elasticity by comparing total revenues. • Total Revenue= PxQ

39. Total Revenue Continued • A drop in a business’s total revenue from a price increase indicates elastic demand. • Changing movie ticket prices from $4 to $5. • A rise in a business’s total revenue because of a price increase indicates inelastic demand. • Say the ticket prices went from $3 to $4.