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Demand AG BM 102 Demand AG BM 102

Talk is cheap. Supply exceeds Demand. Talk is cheap. Supply exceeds Demand.

Background • • First question is what can you sell? How much? What price? Background • • First question is what can you sell? How much? What price? Related questions – What happens over time? • How about related products?

Demand - A schedule of the quantities of product that consumers will buy at Demand - A schedule of the quantities of product that consumers will buy at various prices

A Demand Schedule • Is a price- quantity relationship • Assumes other things, such A Demand Schedule • Is a price- quantity relationship • Assumes other things, such as income, are constant • Is for a fixed period of time – per month, per year, etc.

An Example - Beef Price/lb. $5. 00 Quantity lb. /cap. 50 $3. 75 Quantity An Example - Beef Price/lb. $5. 00 Quantity lb. /cap. 50 $3. 75 Quantity lb. /cap. 75 $4. 75 55 $3. 50 80 $4. 50 60 $3. 25 85 $4. 25 65 $3. 00 90 $4. 00 70 $2. 75 95

Points about Graphs • Price is on the vertical axis • Quantity is on Points about Graphs • Price is on the vertical axis • Quantity is on the horizontal axis • Since consumers see prices and choose quantities, Q = f(P) • This is opposite of usual graphs in algebra where the dependent variable is on the vertical axis

Why do we have demand curve sloping downward? Why do we have demand curve sloping downward?

Downward Sloping Demand • For ordinary goods, the additional unit is worth less – Downward Sloping Demand • For ordinary goods, the additional unit is worth less – if you have eaten six donuts, how much is the seventh worth to you? • For ordinary goods, a sale induces consumers to buy more.

What happens when the prices of a related good changes? What happens when the prices of a related good changes?

Two choices • The consumption of beef goes down when the price of chicken Two choices • The consumption of beef goes down when the price of chicken goes down – substitute goods • The consumption of beef goes up when the price of hamburger buns goes down – complementary goods (good consumed together)

Price Chicken Falls Price of Chicken Price Chicken Falls Price of Chicken

What if income changes? • Depends on good • Ordinary goods – consumption rises What if income changes? • Depends on good • Ordinary goods – consumption rises • Inferior Goods – consumption falls bologna • Size of change depends on the characteristics of the good

Income Falls Income Falls

Tastes and Preferences • • Affect demand Health news New competing products Changes in Tastes and Preferences • • Affect demand Health news New competing products Changes in lifestyle

Bad Health News about beef Bad Health News about beef

Some terms • A change in demand – the line moves because of some Some terms • A change in demand – the line moves because of some external factor – health news • A change in quantity demanded – a price change induces the consumer to move to a new point on the line

Change in Demand? or Change in Quantity Demanded? • • • Drought reduces crop Change in Demand? or Change in Quantity Demanded? • • • Drought reduces crop size? Russia puts embargo on our wheat Consumers object to GMO soybeans Price of substitute falls Economy in slump - Income falls New technology makes chickens lay more eggs

Concluding Comments • Demand is a key to understanding economics • It is the Concluding Comments • Demand is a key to understanding economics • It is the ultimate measure of what your product is worth • Is the price of milk too low? • Not given how much is available – now it is a buyer’s market