Flowers

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Different Goods
Intro
Diagram
Causes
Exceptions
More Demand Diagrams!
changes in the conditions of demand
2
Lesson Objectives
Different Goods
Intro
Diagram
Causes
Exceptions

• 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.

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Basic Demand curve
Different Goods
Diagram
Causes
Intro
Exceptions

• 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

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Different Goods
Diagram
Causes
Intro
Exceptions
Movements along a demand curve
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The Demand Curve
Price
P2
P1
Demand
Quantity Demanded
Q1
Q2
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A contraction of demand
Price
A contraction of demand due to a higher price
P2
P1
Demand
Quantity Demanded
Q1
Q2
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An expansion of demand
Price
An expansion of demand due to a lower price
P1
P2
Demand
Quantity Demanded
Q1
Q2
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Different Goods
Diagram
Causes
Intro
Exceptions
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)

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A change in price causes a.. movement along
the demand curve!
Different Goods
Diagram
Causes
Intro
Exceptions
What comes first?
The change in price or a change in demand?
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Falling Prices and Demand
Different Goods
Diagram
Causes
Intro
Exceptions

• Many goods and services are cheaper now in both
  money and real terms than they were a few years
  ago
• Short-break holidays overseas
• Prices of new audio-visual equipment
• Personal computers
• New car prices
• When prices are falling, we see a rise in the
  quantity demanded as consumers respond to the
  change in price

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Different Goods
Diagram
Causes
Intro
Exceptions
Shifts in Demand
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Different Goods
Diagram
Causes
Intro
Exceptions
Price
What can cause demand to increase or fall,
despite the price remaining the same?
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Causes of an outward shift in demand
Different Goods
Intro
Diagram
Causes
Exceptions

• 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

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Different Goods
Intro
Diagram
Causes
Exceptions
Group work

• You will be given an image slide to work in
  groups of 3s
• 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!

15
Different Goods
Intro
Diagram
Causes
Exceptions
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.

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Different Goods
Intro
Diagram
Causes
Exceptions
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.

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Different types of goods
Different Goods
page 01
page 02
page 03
Exceptions

• Normal
• Substitutes
• Complementary
• Inferior
• Ostentatious

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Substitutes
Different Goods
page 01
page 02
page 03
Exceptions

• 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

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Different Goods
page 01
page 02
page 03
Exceptions

• What could be a substitute product for
• Esso petrol?
• BT phone line?
• Budget car rental?
• Fresh salmon?
• Beer?
• Nike trainers?

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Changes in price of Substitutes
Different Goods
Exceptions
Intro
Diagram
Causes
page 01
page 02
page 03
Price of Texaco petrol
Price of Shell petrol
P2
P1
P1
D2
Demand
D1
Output (Q)
Q1
Q2
Q1
Q2
Output (Q)
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Complements
Different Goods
page 01
page 02
page 03
Exceptions

• 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

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Different Goods
page 01
page 02
page 03
Exceptions
What are the complement goods to these items?
A change in the demand for these goods will
directly effect the demand for their
complementary goods.

• To fish and.
• DVD players
• 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.
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Inferior Goods
Different Goods
page 01
page 02
page 03
Exceptions

• 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

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Ostentatious Goods
Different Goods
page 01
page 02
page 03
Exceptions

• 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
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Ostentatious Goods
Different Goods
page 01
page 02
page 03
Exceptions
Olympic Gold medallist rewarded with Jimmy Choo
shoes!
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Exceptions
Different Goods
Intro
Diagram
Causes
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

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Exceptions
Different Goods
Intro
Diagram
Causes
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.

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Different Goods
Intro
Diagram
Causes
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.

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What if..
Different Goods
Intro
Diagram
Causes
Exceptions
Inward or outward shift?

• Substitute products price increase?
• Incomes fall what will be the effect on
  normal goods?
• A product has a major advertising campaign?
• Science proves that regular mobile phone use
  damages memory!
• Price of newspaper increases..? Careful

In your notes draw a diagram to show the
impact on the demand schedule(s) for each of
these situations
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Changes in price of Substitutes
Price of Texaco petrol
Price of Shell petrol
P2
P1
P1
D2
Demand
D1
Output (Q)
Q1
Q2
Q1
Q2
Output (Q)
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Different Goods
Intro
Diagram
Causes
Exceptions
Have I mentioned my fascination for shoes yet?
Homework

• Research and find an three examples of a
  good/service
• normal goods
• inferior goods
• ostentatious goods
• Eg Shoes

Christian Lacroix Large bow shoe boots 365
Normal?
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Use the next few slides as handouts for group
work
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What factors are influencing market demand for
smoothies?
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What factors are influencing market demand for
houses?
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What factors are influencing market demand for
second hand cars?
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What factors are influencing market demand for
bread makers?
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What factors are influencing market demand for
holiday cottage in UK?
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What factors are influencing market demand for
buses?
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What factors are influencing market demand for
wellingtons?
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What factors are influencing market demand for
cinema experience?
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