A Lesson on Demand What is Demand

A Lesson on Demand

What is Demand? ® Willing and able to purchase a product at a particular price ® How many of you would like a Porsche [or like vehicle]? ® How many of you are able? ® What’s the difference between willing and able? ® Idea of time and place – at this time, you may be willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

Example: Demand for lolipops Totals 10 20 30 40 50

Demand Schedule ®A table that lists at various prices, the number of items demanded Demand Curve – the graphic representation of demand Graphing a Demand Schedule: 1. The 2. The 3. The Graph the lower left quadrant is “ 0” numbers from the Lollipop vertical axis is price Demand Schedule horizontal axis is quantity

Law of Demand ® As price falls, the quantity demanded increases. As the price rises, the quantity demanded decreases ® P QD Price per gallon Bottles per week of water $ Jo Pat . 74 90 50 130 70 . 36 180 100 . 28 290 130

Demand Curve for Bottled Water

Change in Quantity Demanded vs. Change in Demand ® Change in Quantity Demanded: ® Caused by change in own price of good ® Movement along the curve ® Change in Demand: ® Caused by Change in determinant of demand ® Shift to new demand curve

Demand Determinants ® Income ® Normal Good: a good for which demand increases as consumer incomes rise (milk) ® Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides) ® As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

Determinants con’t ® Preference/Taste ® Likes and dislikes in consumption ® Consumer Expectations ® Change in future price of goods ® Change in future income ® Population ® As Change the number of consumers in a market changes the demand will change

Determinants con’t ® Prices of Related Goods ® Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke) ® Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)