1 / 33

DEMAND

DEMAND. “Econ, Econ”. Demand & Supply. W hy do roses cost more on Valentine’s D ay ? Why do TV ads cost more during the Super Bowl (3 mil. for 30 sec.) than during Nick at Nite reruns?

niles
Download Presentation

DEMAND

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. DEMAND

  2. “Econ, Econ” Demand & Supply Why do roses cost more on Valentine’s Day? Why do TV ads cost more during the Super Bowl (3 mil. for 30 sec.) than during Nick at Nite reruns? Why do hotel rooms in Sun Valley, Idaho cost more in the winter than in the summer? Why do surgeons earn more than butchers? Why do pro basketball players earn more than pro hockey players? Why do economics majors earn more than most other majors? Why are some of you going to major in economics in college? The answer to these and other economics questions boil down to the workings of supply and demand – the subject of this chapter.

  3. Goods That Have Less Demand Than Years Ago • M. Jackson glove • Power Rangers • Parachute pants • Old Jellies • Dalmatian puppies • Furbys • Typewriters 40 million were sold M. Jackson’s popularity

  4. Name Goods That Have Greater Demand Today 1. MP3 Players 2. Cell Phones 3. Wii 4. LCD monitors 5. DVD players 6. Nintendo DS 7. PS3 8. Flip Videos 9. XBOX 360 10. Plasma TVs 11. PSPs 12. Seven jeans 13. Spiked hair 14. GPS Tracker 15. iPhone 16. iPod Video 17. Bratz Dolls 18. Zhu Zhu pets iPhone Flip Video RAZR iPod video Crocs Hoodies PlayStation 3 Bratz Dolls Wii XBOX 360

  5. Figure 4.1The Demand for Compact Discs Individual Demand Schedule demand schedule: a listing that shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

  6. Figure 4.1The Demand for Compact Discs Individual Demand Curve Economists call this the demand curve, a graph showing the quantity demanded at each and every price that might prevail in the market.

  7. Figure 4.2Individual and Market Demand Curves Market Demand Curve shows the quantities demanded by everyone who is interested in purchasing the product.

  8. Figure 4.3A Change in Quantity Demanded Change in Quantity Demanded • Movement on the demand curve showing the change in quantity demanded. • Income Effect • Substitution Effect

  9. Figure 4.4A Change in Demand Change In Demand • Entire demand curve shifts • Right means increase • Left means decrease

  10. Reasons for change in Demand • Tastes • Income • Market size • Expectations • Related goods • Substitutes • Complements

  11. Change in “Taste” D1 D2 D3 P Mini Skirts Hip Huggers Bell Bottoms QD1 Platforms QD3 QD2 1. An “Increase in Taste” shifts the D curve right a. The Nehru jacket came & went in 6 months. b. Jordache jean demand created by TV c. Leisure suits and bell bottoms. d. Technological change may cause consumer taste to change[slide rules]. Jordache

  12. What, me mad? Can Bad Publicity Decrease Hamburger Demand D1 D2 P Hamburger Meat

  13. And – How Can You Tell If Your Cow Has “Mad Cow” Disease? BUT If your cow sounds like this, fire up thebarbecue. If your cow sounds like this, plan on eating fish or chicken.

  14. 2. Change in Income [Normal-Direct; Inferior-Inverse] Steak Spam D2 Less income results in more demand for spam; less demand for steak. D1 More income results in more demand for steak; less demand for spam. In Decemnber, 2008, as unemployment went from 5.7% to 7.2%, a separate report said spam sales had increased by 10%. P QD1 QD2

  15. 3. Change in Market Size [Direct] [Number of Consumers] D2 D1 P More demand for both spam and steak. QD1 QD2

  16. 3. Market Size (direct) (# of consumers) can increase/decrease from economic decisions, advertising, and government political decisions (China). Ex: The large “baby boom” of 1946-64 increased the demand for baby supplies. An increase in life expectancy increased demand for for medical care, retirement communities, and nursing homes. Increase in # of consumers

  17. 4. Expectations [of consumers] [about future price, availibility, & income] If the iPod-Touch is expected to increase in price from $299 to $399. D2 D1 iPod-Touch P QD1 QD2

  18. 4. Expectations [of consumers] [about future income] Let’s say that we are coming out of recession & consumers feel secure about their jobs. [Positive future income] D2 D1 P QD1 QD2

  19. 4. Expectations [of consumers] [about future income] Let’s say that we are going into a recession and consumers don’t feel secure about their jobs. [Negative future income] D1 D2 P QD2 QD1

  20. 5. Prices of Related Goods [Substitues-Direct; Complements-Inverse] D1 D2 D D1 P1 D2 P P P2 Complement [Inverse] QD1 QD2 Substitute [Direct] Gangsta Grills Chrysler 300s Toyotas MV X PQ

  21. There are three types of goods. • Independent [neutral] goods – price change • of one hasno impacton the other. • Ex: fishhooks or salt & shoelaces • 2. Substitute goods(“competing goods”) . • Ex: 7Up & Cokeor • 3. Complementary goods(“go together”) • - price change of one affects the • demand for the other. 5. Prices of Related Goods D1 D2 QD2 QD1 Peanut butter & jelly D2 D1 Camera Film Cereal&milk Coffee & donuts QD1 QD2

  22. [Decreasein price of one; increase in the “D” for the other] I’m making more money without dropping my prices. Complements - Inverse P1 P2 QD1QD2 D1 D2 Car Prices P QD QD Gasoline Demand No change in price They are so cheap that even dogs are buying cars

  23. Substitutes – Direct [Increase in price of one;increasein “D”of the other] Price of iPod Video Demand for Microsoft’s Zune D2 D1 D P P2 P1 QD QD QD2QD1 1977, Bill was arrested for running a stop sign and driving without a license.

  24. “TIMER” P Tastes[direct] Incomes -Normal[direct]& Inferior[inverse] Market Size(# ofconsumers)[direct] Expectations of consumers about [futureprice-direct;future income [direct];andavailability[inverse] Related Good Price Changes [substitutes-direct;complements-inverse] Helmets

  25. [D – “TIMER;QD – price change[inverse] __1.Which will cause an “Increase in Demand”for the Blackberry Curve? a. increase in income c. increase in the price of the Blackberry Curve b. decrease in income d. decrease in the price of the Blackberry Curve ___2. Which will cause an“Increase in QD”for the Blackberry Curve? a. decrease in income c. decrease in the price of the Blackberry Curve b. increase in income d. increase in the price of the Blackberry Curve ___3. Which will cause a“Decrease in Demand” for projectors? a. increase in the price of projectors c. decrease in # of consumers b. decrease in the price of projectors d. increase in projector taste ___4. Which will cause a“Decrease in QD”for projectors? a. increase in the price of projectors c. decrease in # of consumers b. decrease in the price of projectors d. increase in projector taste A C C A

  26. Change in Demand Activity Name a product that you recently purchased because it was on sale. Identify one substitute and one complement for that product. What happened to your demand for the substitute good when the item you bought went on sale? What happened to your demand for the complementary good when that item went on sale?

  27. Figure 4.5The Total Expenditures Test for Demand Elasticity Demand Elasticity Elastic demand: price causes a large change in quantity demanded Inelastic demand: price causes a small if any change in quantity demanded Unit elastic: equal amount of price change results in an equal amount of quantity demanded

  28. Elasticor Inelastic(Total Receipts Test) $2 $1 Elastic Inelastic 20 30 40 50 Total Receipts Test 20 x $2 = $40 Total Receipts Test 20 x $2 = $40.00 50 x $1 = $50 30 x $1 = $30.00

  29. Elastic- QDthat isvery responsive to price.Inelastic- achg in price has littleimpact on QD. • Elastic (flexible) Demand • Substitutes (butter) • Luxury(mink coat) • Expensive(car) • Has durability(refrigerator) • Lasts a long time (gas-guzzling car) • Inelastic (inflexible) Demand • No substitutes(milk) • Necessity(insulin) • Inexpensive(safety pin) • No durability(pencil) • Lasts only a short time(bread)

  30. Figure 4.6Estimating the Elasticity of Demand Is a Product Elastic or Inelastic 3 questions to ask: Can the purchase be delayed? Are Adequate Substitutes Available? Does the purchase use a large portion of income?

  31. Elastic and Inelastic Activity Understanding Cause and Effect A hamburger stand raised the price of its hamburgers from $2.00 to $2.50. As a result, its sales of hamburgers fell from 200 per day to 180 per day. Was the demand for its hamburgers elastic or inelastic? How can you tell? Answer: The demand is inelastic because a 25 percent increase in price resulted in a 10 percent decrease in units sold.

  32. Demand Worksheet

More Related