lecture 4 theory of demand 2017 week9hcih1economics.weebly.com/uploads/7/6/9/3/76931713/... · (iv)...
TRANSCRIPT
Recap
• Scarcityàallocateresourcesbypricemechanism(assumefreemarketeconomy)àDD&SS!
• DD&SSàdetermineeqmPandQ
• Butwhatwillaffectdemand(non-pricefactors)?
WhatdoyouthinkarethedemandfactorsthatresultinchangeinPandQinthesemarkets?
FactorsthatshifttheDDcurve 4.13
4.7NON-PRICEDETERMINANTSOFDEMAND
4.7.2ChangesinTastes&Preferences• FashionorFads
• Advertising
• GovernmentPolicies&Action
• ChangesinSeasons&Weather
P-TIDE
4.15Letusstartwithfactorsthataremorestraightforward
(ii)AdvertisingEffectiveandsuccessfuladvertising• Createwantsateverypricelevel,shiftingthedemandcurveout
4.15
(iii)GovernmentPoliciesandAction4.15
(iv)Changesinseasons&weather,festivals4.15
StrongdemandforicecreamduringhotEuropeansummerhelpsboostUnileversales-thisismoney.co.uk,15October2015ConsumergoodsgiantUnilever,whichownstheMagnumandBen&Jerry’sbrands,postedbetterthanexpectedsalesafteroneofthehottestsummersinEuropeonrecordsawitcashinonstrongdemandforicecream.
WhatarethegoodsthatwillincreaseindemandduringChineseNewYear?
WhatarethegoodsthatwillincreaseindemandduringValentine’sDay?
Insummary,tastesandpreferencesisabroadcategorisationofanumberoffactorsthatinfluencesconsumerlikesanddislikesandhencetheirdesireorwillingnesstobuytheproductfromthemarket
ChangesinDDisinfluencedbychangesinincome.
4.7.3ChangesinConsumerIncome
P-TIDE
4.15
ChangesinincomeaffectstheABILITYoftheconsumerstopurchaseagood
2TypesofGoodsNormalGood
↑Incomeè↑Demand
InferiorGood↑Incomeè↓Demand
4.16
Remember:it’salwaysrelative!
Caféfood Hawkerfood
4.16
Finedining
NormalGoodsorInferiorGoods?
OriginalHigherIncomeIncome
NormalGood
• Agoodforwhichdemandispositivelyrelatedtochangesinincome
• ↑inincomeè↑indemand,illustratedbyarightwardshiftofthedemandcurve&viceversa
QQ1
Price
Quantity
P
DDDD1
4.16
Note:TodetermineP&Q,weneedbothDD&SS.DrawingofDDcurvesaloneisforteachingpurpose.
HigherOriginalIncomeIncome
InferiorGood
• Agoodforwhichdemandisinverselyrelatedtochangesinincome
• ↑inincomeè↓indemand,illustratedbyaleftwordshiftofthedemandcurve&viceversa
Q1Q
Price
Quantity
P
DD1DD
4.16
Note:TodetermineP&Q,weneedbothDD&SS.DrawingofDDcurvesaloneisforteachingpurpose.
Changesinthedemographics(populationsizeandprofile)ofacountryaffectdemandforgoodsandservicesovertime.
P-TIDE
4.17
4.7.4Demographics
P-TIDE
4.17
4.7.4Demographics
(i)Population/MarketSize
Singaporefacesanagingpopulationàdemandforhealthcare,walkingsticks,wheelchairs,oldagehomesetc.willprobablyincrease!
4.17
(ii)AgeComposition4.7.4Demographics
Ifthereisagrowingimbalanceoffemalesovermales,thedemandforcosmetics,fragrances,femaleclothing&beautysalonservicesislikelytoincrease.
4.17
(iii)GenderComposition4.7.4Demographics
Demographicsisakeyfactorthatinfluencesnotjustconsumers’tastesandpreferencesbutalsothepotentialmarketsize,aswellasdemandformanyproductsovertime.
P-TIDE
4.18
4.7.5ChangesinExpectations
(i)Changesinexpectedincome
Ifyouexpectapayraise,youaremorelikelytospendratherthansave!
Whatifyouexpectapaycutorjobloss?
4.18
4.7.5ChangesinExpectations
(ii)Changesinexpectedprice
Tobuyornottobuy?!
Whatifyoufoundoutthatthepricewillfall
intwoweeks?
You’dprobablypostponeyourpurchase!
Changesinexpectationsmayhavelittleimpactifthegoodisperishable.
Why?ThinkaboutValentine’sDay…
4.18
4.7.5ChangesinExpectations
(iii)Changesinspeculativedemand
Checkpoint!Turntopage4.19Explainthat2factorsthatresultintheriseindemandfor‘eldersitter’services
Factor Evidence
TasteandPreference–festiveseason&convenience
‘morepeopleareusingsuchservicesbecause…breakfromnursinghomes…’‘familymembersandcaregiversatthehomeneedhelp…busywithfestivepreparations‘inhomecareisattractiveasitisconvenient’
Analysis:Demandforeldercareserviceincreasesduetochangeintasteandpreferenceduringfestiveseason.Asmorepeoplebringseniorshomeforbreaksandneedhelptotakecareforseniorsduringfestiveseasons.Inaddition,inhomecareismoreconvenientforthelessmobileseniorscomparedtodaycareservices.Theseincreasethedesirabilityofsuchservices.
Checkpoint!Turntopage4.19Explainthat2factorsthatresultintheriseindemandfor‘eldersitter’services
Factor Evidence
Demographics ‘careprovidersattributeriseindemandfortheirservicestoageingpopulationandtheprevalenceofnuclearfamilies….’
Analysis:Demandforeldercareserviceincreasesduetochangeindemographics,wherethereisanageingpopulationinSingapore.Aselderlyaremorelikelytoneedcareandcompanionship,marketsizeforsuchservicesincreases.
FactorsthatshifttheDDcurve 4.13
4.7NON-PRICEDETERMINANTSOFDEMAND
P-TIDE
4.144.7.1ChangesinPriceofRelatedGoodsSUBSTITUTES COMPLEMENTS
SUBSTITUTES
Alternativesperceivedtosatisfythesamewant
E.g.Tea&Coffee;Books&e-Books
4.14
COMPLEMENTS
4.14
Usedjointlyasapackagetosatisfywants.
e.g.Mobilesandsubscriptionplans;laptopsandinternet.
P-TIDE
4.14
4.7.1ChangesinPriceofRelatedGoods
• Achangeinthepriceofonegoodcancauseashiftinthedemandofanothergood.
• ThedirectionoftheshiftinDDwilldependonhowthe2goodsarerelated.
Fig5(i):Changesinthepriceofsubstitutes
DDforeBookswillincreaseifthereisanincreaseinpriceofbooks
PriceofBooks
PA0
PA1
QA1QA0
DD
B
A
QuantityofBooks
Priceofe-Books
DDNODDN1
Quantityofe-Books
PN0
QNQN1
OriginalDemand
4.14
ReferringtoFigure5(i),anincreaseinthepriceofBooksfromPA0toPA1causesitsquantity demanded to fall fromQA0 toQA1 (represented by amovementfrompointAtoBalongDDA),duetoLawofDemand.Given thatBooksande-Booksareclosesubstitutessince theybothsatisfy thesame consumer want, when price of Books increases, consumers will switchfrombuyingBookstoe-Books.Thisswitchtoe-Bookscausesthedemandfore-Bookstoincrease(i.e.shiftindemandcurve)fromDDN0toDDN1
NOTE:ClarityinAnalysis!
DDformobilephoneswillincreaseifthereisafallinpriceofsubscriptionplans
Priceofsubscriptionplan
PSP1
PSP0
QSP0QSP1
DD
A
B
Quantityofsubscriptionplans
Priceofmobilephones
DDMPODDMP1
Quantityofmobilephones
PMP0
QMP0QMP1
OriginalDemand
Fig5(i):Changesinthepriceofcomplements4.14
Q4.Isthedemandforcarsandpetrolcomplementsorderiveddemand?Why?
• Acarandpetrolareincomplements.
• Petrolisneededtopowerthecar,hencebothgoodsmustbeusedtogetherforconsumerstobeabletodrivetosatisfytheirwantofgettingfrompointAtoB.
• Therefore,ariseinthepriceofcarsislikelytoreducethedemandforpetrol.
• Itisnotderiveddemandaspetrolisnotusedintheproductionofcars.
4.14
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riceofrelatedgoods
astes&Preferences
ncome
emographics
xpectations
SUMMARY
Demand=willingnessandabilitytopurchaseQdx=f(Pricex,P,T,I,D,E,….)
Changeinquantitydemanded
Changeindemand
Movementalongthedemandcurve
Shiftingofthewholedemandcurve
SUMMARY 4.18
TRYIT!
Drawtheimpactofanincreaseinincomesonthedemandforbubbletea.
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