A Lesson on Demand

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A Lesson on Demand
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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?
• Whats 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

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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
• The lower left quadrant is 0
• The vertical axis is price
• The horizontal axis is quantity

Graph the numbers from the Lollipop Demand
Schedule
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Example Demand for Lollipops
Totals
10
20
30
40
50
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Law of Demand

• As price falls, the quantity demanded increases.
  As the price rises, the quantity demanded
  decreases
• P QD

Price per pound of coffee beans Quantity of Coffee Beans Demanded (billions of pounds)
2.00 7.1
1.75 7.5
1.50 8.1
1.25 8.9
1.00 10
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Demand Curve for Coffee Beans
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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

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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)

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Determinant - Income
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Determinants cont

• Preference/Taste
• Likes and dislikes in consumption
• Consumer Expectations
• Change in future price of goods
• Change in future income
• Population Change
• As the number of consumers in a market changes
  the demand will change

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Determinants cont

• Consumer Expectations
• Change in future price of goods
• Change in future income

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Determinants cont

• Population Change
• As the number of consumers in a market changes
  the demand will change

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Determinants cont

• 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)

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Determinants cont

• Related Goods

Compliments
Substitutes