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Understanding Demand: A Comprehensive Lesson

Learn the basics of demand, demand schedule, demand curve, law of demand, quantity demanded vs. demand, and demand determinants in this informative lesson. Explore how factors like income, preferences, consumer expectations, population change, and related goods influence demand.

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Understanding Demand: A Comprehensive Lesson

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  1. A Lesson on Demand

  2. What is Demand? • Willing and able to purchase a product at a particular price • How many of you would like a Porsche [or like vehicle]? • How many of you are able? • What’s the difference between willing and able? • Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

  3. Demand Schedule • A table that lists at various prices, the number of items demanded • Demand Curve – the graphic representation of demand • Graphing a Demand Schedule: • The lower left quadrant is “0” • The vertical axis is price • The horizontal axis is quantity Graph the numbers from the Lollipop Demand Schedule

  4. Example: Demand for Lollipops

  5. Law of Demand • As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases • P QD

  6. Demand Curve for Coffee Beans

  7. Change in Quantity Demanded vs. Change in Demand • Change in Quantity Demanded: • Caused by change in own price of good • Movement along the curve • Change in Demand: • Caused by Change in determinant of demand • Shift to new demand curve

  8. Demand Determinants • Income • Normal Good: a good for which demand increases as consumer incomes rise (milk) • Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides) • As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

  9. Determinant - Income

  10. Determinants con’t • Preference/Taste • Likes and dislikes in consumption • Consumer Expectations • Change in future price of goods • Change in future income • Population Change • As the number of consumers in a market changes the demand will change

  11. Determinants con’t • Consumer Expectations • Change in future price of goods • Change in future income

  12. Determinants con’t • Population Change • As the number of consumers in a market changes the demand will change

  13. Determinants con’t • Prices of Related Goods • Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke) • Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)

  14. Determinants con’t • Related Goods Compliments Substitutes

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