Scribd
Upload
15 views53 pages

Demand PPT

Uploaded by

miriamnonny27
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
15 views53 pages

Demand PPT

Uploaded by

miriamnonny27
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 53

Questions… What determines

What happened to the price of a


Furby? Beanie Baby?
Demand
The desire to own something and the ability to pay
for it.
Law of Demand:
 A rise in price causes a
decrease in quantity
demanded;
 A decline in price causes

an increase in quantity
demanded.
 An INVERSE relationship.

https://
www.youtube.com/watch?v=5IWotuQBgs
Graphing Quantity
Demanded:
 Quantity Demanded
(Horizontal Axis):Amount of
a good/service that consumers
would purchase at a particular
price.
 Price (Vertical Axis):What it

costs in terms of currency to


buy the good/service (what’s
Quanity Demanded
A change in the quantity of a good or service that
would be purchased at each possible price.
Patterns:
Substitution Effect: Consumers react to
increase in price by consuming less of
the good & more of other goods.

Substitute- product that is


interchangeable in use with another
product.

An increase in price of substitute


increases demand for other
substitutes.
http://www.yadayadayadaec
on.com/clip/59/
http://economicsoftheoffice.com/a
ll/?q=demand
Flowers— Substitution Effect
“Switching costs”
To avoid substitution effect,
some companies charge
customers when switching to
another competing firm.
Income
Income Effect: Change in
consumption resulting from a
change (or perception of change) in
income
There would be no demand for a product
w/out the ability to pay for it.
Income
Income gives buyers the ability to
pay for a good or service.
If incomes increase, demand
generally increases as well.

Income Deman
d
Inferior Goods

A good that decreases in


demand as income
increases
Normal Goods
Most goods are normal; a good that
we demand more of when income
increases.
Price Quantity Demanded

$1 100

$2 90

$3 70

$4 40

Law of Demand:
At a given point in time, a
rise in price causes a fall
in quantity demanded.
Shifts in the Demand
Curve:
Consumers change
perceptions about the worth
of a product
•Deciding if they want it, not
how much of it they want
 Influenced by any factor

other than price


 Remember: Price generally

refers to movement along the


Shifts in the Demand
Curve:
Shifts to the Right: demand
rises/increases
 Goods & services are More

desirable/Increased worth of
product
Shifts in the Demand
Curve:
Shifts to the Left: decrease in
demand
Consumers not willing to pay
for a product/decreased
desirability worth of the
product
What Shifts Demand?
5 determinants:
•Tastes & Preferences
•Income
•Price & Availability of
Substitutes & Complements
•Consumer Expectations
•Population
Tastes and Preferences:
individual likings or partiality
for specific goods or services.

Can you name any fads from


your generation?
Complements:
Products employed jointly in
conjunction with another product.
An increase in price of a complement
decreases demand for other
complements.
Examples?
Consumer
Expectations:

Changes in consumer
expectations about the
future can cause changes in
the current demand for
products.

Example:
Example: Black
 Wanting to buy a bike and Friday
Others?
finding out it will be on
sale next week.
Gas Lines
Population
Demand for a product depends on
the number of people in the market
area.
Ex. Baby Boomers
Warm Up
Name the 5 determinants that can
shift the demand curve?
Application
With a partner near you work on
pages 4-6
Are there goods that you’d always
find $$$ to buy, even if the price
rose drastically?

• Any you would cut back on or


even stop buying all together?

Economists describe the way that


consumers respond to price
changes as Elasticity of
Elastic or Inelastic
Demand:
Elastic-
 Demand is very sensitive to a

change in price
 (You will by less of a good after a

small price increase)


Inelastic-
 Demand that is not very sensitive

to a change in price.
 (You will keep buying no matter

what the price)


Come up w/ a list of 3 elastic & 3 inelastic
goods
Be prepared to defend your answer.

Elastic Inelastic
Which goods are Elastic
vs. Inelastic? Explain.
Wireless Speakers
Salt
Fur Coat
A Car
A new pair of Sneakers
A Computer
Prescription Drugs
Diamonds
Peanuts
Gasoline
value of price elasticity of
demand:
# of close Substitutes
Necessity v. Luxury
% of Income Spent on Good
Habit-Forming Goods
Time Period under
consideration
# of Close Substitutes
https://www.youtube.com/w
atch?v=dE3Q3NvN2ZE
Hudsucker Proxy:
https://www.youtube.com/watch?v
=Ng3XHPdexNM
Necessity v. Luxury-What are your
basic needs?

http://www.today.com/money/1-770-hamburger-glamburger-2D801
99722
% Of Income Spent on
Good/Service

$1100–
http://abcnews.go.com/GMA/american-coffee-habits-spe
nd-coffee/story?id=16923079
Are they Habit-Forming
Goods?

Govts tend to place ‘sin


taxes’ on inelastic goods
to Limit consumption
Time Period Under
Consideration

More time under consideration =


more elastic demand
. Ex. Gasoline
 Over a Month- demand won’t

change much
 Over a Year -will change more

Additional time allows


consumers to alter behaviors
Price Elasticity of Demand:

the relative size of the


change in quantity demanded
for good/service as a result of
a change in its price.

 Objective: Measure
consumers responsiveness
Elasticity Ratio:
measurement of the degree of
response of a change in quantity
demanded relative to to a change in
price.
% change in quantity demanded
Elasticity ratio =
% change in price
% change in Q
=
% change in P
NEED TO KNOW FORMULA:
% change in quantity demanded
Elasticity ratio =
% change in price
% change in Q
=
% change in P

Percentage Change = Original Number - New


Number
Original Number
Elasticity of Demand
Ratios:
Elastic: a demand condition in
which relative size of the
change in quantity demanded
is greater than the size of the
price change.
If demand is elastic the elasticity
ratio is greater than 1
Inelastic: a demand condition
in which the relative size of
the change in quantity
demanded is less than the
size of the price change.

• If demand is inelastic the


elasticity ratio is less than 1
Unitary elasticity: a
demand condition in which
the relative change in the
quantity demanded is the
same as the size of the
price change.
• If demand elasticity is unitary,
elasticity ratio is exactly 1
Its ALL about the SLOPE

In general, the slope of a


demand curve indicates
how elastic or inelastic
demand is.
PERFECTLY ELASTIC:
quantity demanded varies from
zero to infinity when there is a
change in price.

Example:
Money
PERFECTLY INELASTIC:
No change in the quantity
demanded when price changes.

Example:
Life saving
medicine
Types of Demand Elasticity
14

12
Perfectly inelastic
10
Relatively elastic
Price ($)

8 Perfectly elastic

4
Relatively inelastic
2

0
2 4 6 8 10 12
Quantity
Supply and Demand
Review
https://www.youtube.com/watch?v=g9aDizJpd_s

You might also like