Consumer DemandConsumer Demand

Patterns of SpendingPatterns of Spending About 70% of a householdAbout 70% of a household’’s budget s budget

is spent on housing, transportation, is spent on housing, transportation, food, and health expenditures. food, and health expenditures.

““EssentialEssential”” items have changed from items have changed from years ago. years ago.

How the Consumer Dollar How the Consumer Dollar Is SpentIs Spent

What is Demand?What is Demand? DemandDemand – The ability and – The ability and

willingness to buy specific willingness to buy specific quantities of a good or service at quantities of a good or service at alternative prices in a given time alternative prices in a given time period.period.

What Creates Demand?What Creates Demand? The desire for goods and services The desire for goods and services

arises from our needs for social arises from our needs for social acceptance, security, and ego acceptance, security, and ego gratification. gratification.

““Keeping up with the JonesesKeeping up with the Joneses”” Self preservationSelf preservation Expressions of affluenceExpressions of affluence

Affluent TeenagersAffluent Teenagers

Demand Depends on…Demand Depends on… Tastes - desire for this and other Tastes - desire for this and other

goods:goods: If a study says ice cream is good for If a study says ice cream is good for

you, the demand for ice cream would you, the demand for ice cream would increase.increase.

Demand Depends on… Demand Depends on… Income (of the consumer)Income (of the consumer)::

If you won the lottery you might buy If you won the lottery you might buy more ice cream.more ice cream.

Demand Depends on…Demand Depends on… Expectations (for income, prices, Expectations (for income, prices,

tastestastes)) If you knew you were going to get If you knew you were going to get rich soon you might deplete savings rich soon you might deplete savings to buy more ice cream now.to buy more ice cream now.

This would increase the demand for This would increase the demand for ice cream. ice cream.

Demand Depends on…Demand Depends on… Other goods (their availability Other goods (their availability

and price):and price): If the price of chocolate candy bars If the price of chocolate candy bars

increased, you might buy ice cream increased, you might buy ice cream instead of a candy bar.instead of a candy bar.

This would increase the demand for ice This would increase the demand for ice cream.cream.

Demand Depends on…Demand Depends on… The number of consumers in the The number of consumers in the

market:market: If the number of buyers in the ice cream If the number of buyers in the ice cream

market increased, the demand for ice market increased, the demand for ice cream would also increase. cream would also increase.

Determining Price Determining Price Economists assume that the more Economists assume that the more

pleasure a product gives, the higher pleasure a product gives, the higher price buyers are willing to pay.price buyers are willing to pay.

Students who like butter are willing Students who like butter are willing to pay more for buttered popcorn to pay more for buttered popcorn than non-buttered popcorn because than non-buttered popcorn because they like it more. they like it more.

Price and QuantityPrice and Quantity Many forces determine how much Many forces determine how much

we are willing to buy.we are willing to buy. Economists focus on the relationship Economists focus on the relationship

between price and quantity rather between price and quantity rather than trying to explain all the forces than trying to explain all the forces at once.at once.

Law of Demand Law of Demand With given income, tastes, expectations, With given income, tastes, expectations,

and prices of other goods and services, and prices of other goods and services, people are willing to buy additional people are willing to buy additional quantities of a good only if its price falls.quantities of a good only if its price falls.

Think About:Think About:A student who buys popcorn… A student who buys popcorn…

The first box consumed is very rewarding.The first box consumed is very rewarding.The second box is good.The second box is good.The third box is decent, etc.The third box is decent, etc.(The student will not want to buy more popcorn (The student will not want to buy more popcorn

unless the price falls at some point.)unless the price falls at some point.)

Law of Demand Law of Demand According to the According to the law of demandlaw of demand, ,

the quantity of a good or service the quantity of a good or service demanded in a given time period demanded in a given time period increases as its price falls.increases as its price falls.

PricesPrices Differences in prices are explained Differences in prices are explained

by several factors:by several factors: Necessities vs. LuxuriesNecessities vs. Luxuries Availability of SubstitutesAvailability of Substitutes Price Relative to IncomePrice Relative to Income

Necessities vs. LuxuriesNecessities vs. Luxuries Some goods are so critical to our Some goods are so critical to our

everyday life that we regard them as everyday life that we regard them as necessitiesnecessities..

Demand for necessities is relatively Demand for necessities is relatively stablestable..

Necessities vs. LuxuriesNecessities vs. Luxuries A A luxuryluxury goodgood is something we is something we’’d d

like to have but arenlike to have but aren’’t likely to buy t likely to buy unless our income jumps or the price unless our income jumps or the price declines sharply.declines sharply.

Demand for luxury goods is Demand for luxury goods is relatively relatively unstableunstable..

Availability of Availability of SubstitutesSubstitutes

The greater the availability of The greater the availability of substitutes, the substitutes, the higherhigher the the probability that the price will be probability that the price will be stable (the same).stable (the same).

The smaller the availability of The smaller the availability of substitutes, the substitutes, the lowerlower the probability the probability that the price will be stable. that the price will be stable.

Price Relative to IncomePrice Relative to Income If the price of a product is very high If the price of a product is very high

relative to the consumerrelative to the consumer’’s income, s income, the demand will tend to be the demand will tend to be unstable unstable (changeable)(changeable)..

If the price of a product is very low If the price of a product is very low relative to the consumerrelative to the consumer’’s income, s income, the demand will tend to be the demand will tend to be stablestable..

The Role of AdvertisingThe Role of Advertising Advertising campaigns are often Advertising campaigns are often

designed to exploit our senses and designed to exploit our senses and lack of knowledge.lack of knowledge.

Advertising makes us Advertising makes us wantwant to buy to buy things and use services.things and use services.