Simple Concepts of Simple Concepts of DemandDemand

DemandDemand: amount of a good or : amount of a good or service people are willing and service people are willing and able to buy at a given price and able to buy at a given price and during a certain time periodduring a certain time period

Law of demandLaw of demand: an increase in : an increase in price will bring a decrease in price will bring a decrease in quantity demanded, while a quantity demanded, while a decrease in price will cause an decrease in price will cause an increase in quantity demandedincrease in quantity demanded

Law of Law of demanddemand

It all comes down to common It all comes down to common sensesense

If DVDs go from an average of If DVDs go from an average of $12 per unit to $24 per unit, the $12 per unit to $24 per unit, the quantity demanded for DVDs will quantity demanded for DVDs will inevitably go down, other things inevitably go down, other things being equalbeing equal

If there is a big sale on DVDs, and If there is a big sale on DVDs, and they drop in price to $8 apiece, the they drop in price to $8 apiece, the quantity demanded would be much quantity demanded would be much greatergreater

It would show through sales figuresIt would show through sales figures A change in price will bring a change A change in price will bring a change

in quantity demandedin quantity demanded

Relationship between price and Relationship between price and quantityquantity

Price: $250 Quantity: 0Price: $250 Quantity: 0 $230 1000$230 1000 $210 2000$210 2000 $190 3000$190 3000 $170 4000$170 4000 $150 5000$150 5000 $130 6000$130 6000

As figures in Price go up, figures As figures in Price go up, figures in Quantity go downin Quantity go down

You can graph information and You can graph information and discover the nature of the discover the nature of the demand of a certain productdemand of a certain product

Question: In usual Question: In usual circumstances, your school sells circumstances, your school sells 3000 tickets to its football games 3000 tickets to its football games at $5 each. Fill out the chart for at $5 each. Fill out the chart for what you believe the quantity what you believe the quantity demanded would be as the ticket demanded would be as the ticket prices rose or fellprices rose or fell

Price in $ Amount SoldPrice in $ Amount Sold 3 _______3 _______ 4 _______4 _______ 5 30005 3000 6 _______6 _______

Change in Price Affect Change in Price Affect Quantity DemandedQuantity Demanded

Think of a rubber bandThink of a rubber band The more elastic it is, the more it The more elastic it is, the more it

can stretchcan stretch If a product changes its price, we If a product changes its price, we

expect there will be a change in expect there will be a change in the quantity demandedthe quantity demanded

If a product changes its price, we If a product changes its price, we expect there will be a change in expect there will be a change in the quantity demandedthe quantity demanded

The degree of that change is a The degree of that change is a product’s product’s elasticityelasticity

If prices changes only a little, the If prices changes only a little, the quantity demanded changes a quantity demanded changes a whole lotwhole lot

Product would have an Product would have an elastic elastic demanddemand

This is because people will make This is because people will make the decision not to buy the product the decision not to buy the product if it does not fit in their budgetsif it does not fit in their budgets

On the other hand, there are On the other hand, there are products that are necessary to our products that are necessary to our survival- we call these survival- we call these necessitiesnecessities

If you have a pacemaker and had If you have a pacemaker and had to replace the battery every so to replace the battery every so often, a slight jump in price would often, a slight jump in price would not dissuade you from buying onenot dissuade you from buying one

Paying a lot for a battery is better Paying a lot for a battery is better than an massive heart attack any than an massive heart attack any dayday

No matter what happens to price, No matter what happens to price, the quantity demanded will the quantity demanded will remain rather constantremain rather constant

When price increases or When price increases or decreases, quantity hardly decreases, quantity hardly changeschanges

This would be price inelasticThis would be price inelastic

How inelastic the demand for a How inelastic the demand for a certain product is depends certain product is depends greatly upon how much people greatly upon how much people need or want the productneed or want the product

UtilityUtility is the usefulness or is the usefulness or satisfaction that people get from satisfaction that people get from a good or servicea good or service

Coffee in the morning might have Coffee in the morning might have a very low utility for you while the a very low utility for you while the thought of a donut gets you thought of a donut gets you giddygiddy

Therefore, donuts would have Therefore, donuts would have more utilitymore utility

One would expect you would One would expect you would have a constant desire for have a constant desire for donuts- this is not the casedonuts- this is not the case

Imagine the feeling you get when Imagine the feeling you get when you eat that first one- it’s your you eat that first one- it’s your favorite- glazed, with a jelly fillingfavorite- glazed, with a jelly filling

The first one is magic going The first one is magic going down, but as you eat the second down, but as you eat the second one, you find that it is not as one, you find that it is not as satisfying. satisfying.

Subsequently, each one that you Subsequently, each one that you gorge loses its appeal more and gorge loses its appeal more and moremore

This is known as This is known as diminishing diminishing marginal utilitymarginal utility

Utility you get from pastry to pastry Utility you get from pastry to pastry will decrease with each one you eatwill decrease with each one you eat

When you venture out on your When you venture out on your own into the “real world,” what do own into the “real world,” what do you suppose you will eat?you suppose you will eat?

Many college students who live Many college students who live on a shoestring budget eat on a shoestring budget eat generic goods and inexpensive generic goods and inexpensive foods like mac and cheesefoods like mac and cheese

They dream of a day when their They dream of a day when their budgets no longer constrain their budgets no longer constrain their dietsdiets

Products one buys less of when Products one buys less of when income rises are called income rises are called inferiorinferior

Income effectIncome effect on demand also on demand also has a flip sidehas a flip side

As people make more money, As people make more money, there are some products they there are some products they tend to buy more often- these tend to buy more often- these are called are called normal goodsnormal goods

Most students don’t have money Most students don’t have money for luxurious items like steak and for luxurious items like steak and shrimp- but once they graduate shrimp- but once they graduate and begin collecting a paycheck, and begin collecting a paycheck, their budgets may permit ittheir budgets may permit it

List 5 products that have elastic List 5 products that have elastic demands and list 5 products that demands and list 5 products that have inelastic demandshave inelastic demands

Demand Curves Move!Demand Curves Move!

Over a period of time, the simple Over a period of time, the simple demand curves may shiftdemand curves may shift

In other words, it is possible for In other words, it is possible for sales of DVDs to increase while sales of DVDs to increase while remaining at a set price of $12 remaining at a set price of $12 apieceapiece

Maybe the actor/actress is more Maybe the actor/actress is more popular, maybe the average popular, maybe the average movie buyer has more money to movie buyer has more money to spendspend

Perhaps the consumers will Perhaps the consumers will begin to prefer another mediumbegin to prefer another medium

We call these factors that We call these factors that change the quantity demanded change the quantity demanded without a change in price the without a change in price the determinants of demanddeterminants of demand

There are five determinants of There are five determinants of demanddemand

Consumer preferencesConsumer preferences- in - in 1987, New Kids on the Block 1987, New Kids on the Block sold tons of merchandise. sold tons of merchandise. Tastes have changed in the last Tastes have changed in the last decade or so, they sell next to decade or so, they sell next to nothing outside of garage sales nothing outside of garage sales any moreany more

Market SizeMarket Size: As baby boomers : As baby boomers start to reach golden years, the start to reach golden years, the demand for Depends demand for Depends Undergarments will go up- prices Undergarments will go up- prices can remain the same, but with can remain the same, but with more senior citizens, the quantity more senior citizens, the quantity demanded will increasedemanded will increase

IncomeIncome: If the average income : If the average income of the average family goes down, of the average family goes down, then we can expect sales in the then we can expect sales in the school bookstore to dropschool bookstore to drop

Students will simply not have the Students will simply not have the money to spend on sweatshirts money to spend on sweatshirts and diskettesand diskettes

Prices of related goodsPrices of related goods- if the - if the price of Skippy goes up, people price of Skippy goes up, people will simply buy more Peter Pan will simply buy more Peter Pan or Jif. We call products easily or Jif. We call products easily replaced with others replaced with others substitutessubstitutes

On the other hand, if the price of On the other hand, if the price of all peanut butter goes up by five all peanut butter goes up by five times, people will buy lesstimes, people will buy less

If that happens, Smuckers will no If that happens, Smuckers will no doubt experience a sharp doubt experience a sharp decrease in salesdecrease in sales

Peanut butter and jelly are often Peanut butter and jelly are often sold in conjunction with other sold in conjunction with other another- we call them another- we call them complementscomplements

Consumer SecurityConsumer Security: most : most adults have a certain amount of adults have a certain amount of anxiety about the futureanxiety about the future

When people feel good about the When people feel good about the future, they tend to spend moneyfuture, they tend to spend money

When they feel that they might When they feel that they might lose their jobs or that a lose their jobs or that a depression might be coming depression might be coming soon, they will not buy as muchsoon, they will not buy as much

This would decrease the amount This would decrease the amount of sales a store would have while of sales a store would have while they never adjusted their pricethey never adjusted their price

Question: Considering school Question: Considering school cafeteria chicken patties, for cafeteria chicken patties, for each of the five determinants, each of the five determinants, state one instance for each of state one instance for each of the five determinants in which the five determinants in which demand would increase or demand would increase or decreasedecrease