demand
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DemandChapter 4
What is Demand?
The willingness to BUY a product Essential in understanding the market
Determines pricing Quality of goods and services Distribution of goods and services
MICROeconomics= deals with behavior and decision making by individuals and buisnesses.
Demand Schedule/Curve
Law of Demand Demand varies
INVERSELY with its price Price Demand
Price Demand
WHY?
Changes in Quantity Demand Change in quantity purchased due to
change in price Income Effect:
Change in QD due to change in consumer’s income itunes song $2.99 each x 25 =$74.75 itunes song $ .99 each x 25 =$24.75 Difference of $50 consumers has left of income
Change in Quanity Demand Substitution Effect:
Change in QD due to change in the relative price of produce Popcorn vs. Candy at movies
Movie goer only had $6 to spend on refreshments at the movies.
Popcorn $3.50 and candy is $4.00. Movie goer chooses popcorn with some $ left
over to buy a small drink.
Now that you have charted your curve…
How might the QD for tickets change due to the income effect?
Substitution Effect?
Changes in Demand
Changes in Demand Buy different
amounts at same prices Creates new curve_____________________
1. Consumer Income 2. Consumer Trends 3. Price of Related
Products
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=change+in+demand
Consumer Income Change in
consumer income changes demand Ex. Poor economy
Both up or both down
Why?
Income D
Income D
Consumer Income Which curve
represents increase in consumer income? Decrease in consumer income?
How did you determine your asnwers?
Consumer Taste Trends, ads, news
affect consumer taste
Ex. Bell bottom jeans
Both go up or both go down
Why?
Pop D
Pop D
Consumer TastePrice QD Bell
Bottoms 1975
QD Bell Bottoms 2012
$8
$10
$18
$25
$35
Create a graph depicting the shift of demand
Price of Related Products Change in price of
related products changes demand Substitutes
Butter v. margarine
Compliments Pancakes and
syrup
Substitutes Prices goes UP QD goes DOWN Substitute goes UP
Complimentary Price goes UP QD goes DOWN Complimentary Goes
DOWN
Practice Name a product that you recently bought
because it went on sale. Identify at least one substitute for the product and a complimentary if possible. What happened to your demand for the substitute good when you purchased the sale item? What happened to your demand for the complimentary item when you purchased the sale item? Distinguish between a change in quantity demanded and a change in demand.
Marginal Utility The EXTRA usefulness
or satisfaction a person gets from acquiring one more unit of a product. Amount added “at the
margin” 1 cup of hot cocoa after
playing in the snow vs. 2 cups
When you reach saturation you stop buying – your marginal utility is less than then the price is worth
Diminishing Marginal Utility Too much hot cocoa
makes your want it less….your marginal utility is diminishing or going down
The more units a person acquires the less eager they are to buy more
Demand decreases
Homework Find a headline from a current
newspaper (paper or online) that illustrates something that could cause a CHANGE in DEMAND.
Determine what change in demand would occur and why?
Create a general graph showing the shift of the demand curve and write a brief explanation of the reason for the shift.
Demand Elasticity Used to indicate the extent to which
changes in price cause changes in the quantity demanded
Elastic demand = small change in price has large change in QD
Inelastic demand= change in price causes small change in QD
ELASTIC Demand Usually wants and not needs Price increase or decrease
will show noticible change in QD
Example: T-bone steaks Price drop from $6.oo/lbs. to $3.00 will
increase demand
INELASTIC Demand Usually needs When price changes QD remains
constant
Ex. Price of table salt decreases, QD will not really change
QD Price
Specific v. General Market Depending on market size – a product
can be elastic or inelastic
Specific markets= more elastic Local gas station= high gas prices, low QD
General markets= less elastic All gas stations= high gas prices, QD
constant
Elasticity Practice Create your own example of a product
that can be sold in the specific and general markets and explain the affect on demand elasticity.
Determinants of Demand Can the Purchase be Delayed
Medicine vs. Twinkies
Are Adequate Substitutes Available? Chick Fil A Waffle Fries v. McDonald’s French Fries
Does the Purchase Use a Large Portion of Income? New car vs. Mc Donald’s Strawberry Shake
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