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Demand

Demand. AG BM 102. Fish Market, Riga, Latvia. Talk is cheap. Supply exceeds Demand. . Background. First question is what can you sell? How many units? At what price? Related questions What happens over time? How about related products? What about income?.

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Demand

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  1. Demand AG BM 102 Fish Market, Riga, Latvia

  2. Talk is cheap. Supply exceeds Demand.

  3. Background • First question is what can you sell? • How many units? • At what price? • Related questions • What happens over time? • How about related products? • What about income?

  4. Demand - A schedule of the quantities of product that consumers will buy at various prices

  5. A Demand Schedule • Is a price- quantity relationship • Assumes other things, such as income, are constant • Is for a fixed period of time – per month, per year, etc.

  6. An Example - Beef

  7. Algebra – on board

  8. Beef for Sale, Central Market, Almaty Kazakhstan

  9. Points about Graphs • Price is on the vertical axis • Quantity is on the horizontal axis • Since consumers see prices and choose quantities, Q = f(P) • This is opposite of usual graphs in algebra where the dependent variable is on the vertical axis – if you use excel or a graphing calculator you need to make an adjustment

  10. Why do we have demand curve sloping downward?

  11. Downward Sloping Demand • For ordinary goods, the additional unit is worth less – if you have eaten six donuts, how much is the seventh worth to you? • For ordinary goods, a sale induces consumers to buy more.

  12. What happens when the prices of a related good changes?

  13. Two choices • The consumption of beef goes down when the price of chicken goes down – substitute goods • The consumption of beef goes up when the price of hamburger buns goes down – complementary goods (good consumed together)

  14. Price Chicken Falls Price of Chicken Falls

  15. What if income changes? • Depends on good • Ordinary goods – consumption rises • Inferior Goods – consumption falls - bologna • Size of change depends on the characteristics of the good

  16. Income Falls

  17. Tastes and Preferences • Affect demand • Health news • New competing products • Changes in lifestyle Nearly 96,000 pounds of ground beef products recalled

  18. Bad Health News about beef

  19. Some terms • A change in demand – the line moves because of some external factor – health news • A change in quantity demanded – a price change induces the consumer to move to a new point on the line

  20. Change in Demand? or Change in Quantity Demanded? • Drought reduces crop size • Consumers object to GMO soybeans • Price of substitute falls • Economy in slump - Income falls • New technology makes chickens lay more eggs

  21. Concluding Comments • Demand is a key to understanding economics • It is the ultimate measure of what your product is worth • Was the price of milk too low last year? • Not given how much was available –it was a buyer’s market

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