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Intro Diagram Causes Different Exceptions Goods More Demand Diagrams! & changes in the conditions of demand
Intro Diagram Causes Different Exceptions Goods Lesson Objectives • To review factors that cause a MOVE and a SHIFT in Demand. • To be able to apply the concepts of different types of goods to issues of demand.
Intro Diagram Causes Different Exceptions Goods Basic Demand curve… • The quantity of a product consumers are willing and able to buy at different prices in a specified time period – Normally there is an inverse relationship between the price of good X and the quantity demanded of good X
Intro Diagram Causes Different Exceptions Goods Movements along a demand curve
The Demand Curve Price P 2 P 1 Demand Q 2 Q 1 Quantity Demanded
A contraction of demand Price A contraction of demand due to a higher price P 2 P 1 Demand Q 2 Q 1 Quantity Demanded
An expansion of demand Price An expansion of demand due to a lower price P 1 P 2 Demand Q 1 Q 2 Quantity Demanded
Intro Diagram Causes Different Exceptions Goods Exam skills in drawing diagrams • Do not draw too small or too big! • Keep it neat! • Always label axis with a 0, and top/bottom titles. • MUST label curve(s) • Draw on movement arrows (on the axis)
Intro Diagram Causes Different Exceptions Goods A change in price What comes first? causes a…. . The change in price movement along or a change in demand? the demand curve!
Intro Diagram Causes Different Exceptions Goods Shifts in Demand
Intro Diagram Different Causes Exceptions Goods Price Decrease in Demand Increase in Demand What can cause demand to increase or fall, despite the price remaining the same? P 1 D 3 Q 1 Q 2 D 2 Quantity Demanded
Intro • • Diagram Causes Different Goods Exceptions Causes of an outward shift in demand A rise in the real incomes of consumers An increase in the price of a substitute good (i. e. a competing product) A fall in the price of a complementary good A change in consumers’ preferences towards the good An increase in the size of the total population A fall in interest rates A rise in consumer confidence Social changes which affect total demand for a product
Intro Diagram Causes Different Exceptions Goods Group work • You will be given an image slide to work in groups of 3’s • You need to be able to EXPLAIN the specific factors that would influence an increase in market demand for the good/service on your sheet! • After 5 mins you will need to feedback your ideas to the group – ‘elect’ a spokesperson in your group!
Intro Diagram Causes Different Exceptions Goods Individual work…. • Using your whiteboard…. • Sketch some demand curves for the following situations and think of how you would expect the demand curve to change….
Intro Diagram Causes Different Exceptions Goods QUICK FIRE DRAWINGS… • The demand for choc following campaign on the dangers of obesity • The demand for oranges following a medical research linking a reduction in colds and eating/drinking oranges.
page 01 page 02 page 03 Different Exceptions Goods Different types of goods • • • Normal Substitutes Complementary Inferior Ostentatious
page 01 page 02 page 03 Different Exceptions Goods Substitutes • Substitutes are goods in competitive demand – They are replacements for another product – For example, a rise in the price of Esso petrol (other factors held constant) should cause a substitution effect away from Esso towards Shell or other competing brands
page 01 page 02 page 03 Different Exceptions Goods What could be a substitute product for: • Esso petrol? • BT phone line? • Budget car rental? • Fresh salmon? • Beer? • Nike trainers?
Intro page 01 Diagram Different Causes page 02 Goods Exceptions page 03 Changes in price of Substitutes Price of Texaco petrol Price of Shell petrol P 2 P 1 Demand Q 2 Q 1 Output (Q) D 1 Q 2 D 2 Output (Q)
page 01 page 02 page 03 Different Exceptions Goods Complements • Complements are said to be in joint demand – Examples include: fish and chips, DVD players and DVDs, iron ore and steel – A rise in the price of a complement to Good X should cause a fall in the demand for X
page 01 page 02 page 03 Different Exceptions Goods What are the complement goods to these items? • To fish and…. A change in the demand for • DVD players these goods will directly effect the demand for their complementary goods. • Ipods • Flights from London to New York • A fall in price for digital camera The extent to which a change in the price of one good leads to a change in the demand for a complement is determined by the cross-price elasticity of demand.
page 01 page 02 page 03 Different Exceptions Goods Inferior Goods • For normal products, more is demanded as income rises, and less as income falls • There are exceptions called inferior products • They are often cheaper poorer quality substitutes for some other good • With a higher income a consumer can switch from the cheaper substitute to preferred alternative • As a result, less of the inferior product is demanded at higher levels of income
page 01 page 02 page 03 Different Exceptions Goods Ostentatious Goods • Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people! Jimmy Choo £ 460 Dolce & Gabbana £ 250
page 01 page 02 page 03 Different Exceptions Goods Ostentatious Goods Olympic Gold medallist rewarded with Jimmy Choo shoes!
Intro Diagram Causes Different Goods Exceptions • Some goods & services do not have an inverse relationship with price… • Ostentatious goods – the lower the price, the target customers will not want the product, but the higher the price – the higher the demand! • Speculative demand - potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit
Intro Diagram Causes Different Goods Exceptions • Giffen Goods - special type of inferior good may exist, which disobeys the "law of demand". • When the price of a Giffen Good decreases, the demand for that good decreases. • This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand. • The observed demand curve would slope upward, indicating positive elasticity.
Intro Diagram Causes Different Goods Exceptions On your whiteboard…. • On one side write OUTWARD • On the other write INWARD • Then be prepared to decide what the effect of the following will have on demand.
Intro Diagram Causes Different Goods What if…. . Exceptions Inward or outward shift? • Substitute products’ price increase? In your notes– draw • Incomes fall – what will be diagram to show ‘normal’ a the effect on the ‘impact’ on the goods? demand schedule(s) • A product has a major advertising campaign? for each of these situations • Science proves that regular mobile phone use damages memory! • Price of newspaper increases…. . ? Careful…
Changes in price of Substitutes Price of Texaco petrol Price of Shell petrol P 2 P 1 Demand Q 2 Q 1 Output (Q) D 1 Q 2 D 2 Output (Q)
Intro Diagram Causes Different Goods Homework… Exceptions Have I mentioned my fascination for shoes yet? • Research and find an three examples of a good/service… Christian Lacroix • ‘normal’ goods Normal? Large bow shoe • inferior goods boots £ 365 • ostentatious goods • Eg Shoes…
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