Drill 9/12/07 What is DEMAND?

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Drill 9/12/07 What is DEMAND?

• Demand the desire to own something and the
  ability to pay for it

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The Law of Demand

• When the price is lower, the consumer will buy
  more of it. When the price is higher the
  consumer will buy less of it.
• Substitution Effect As the price rises,
  consumers are more likely to buy an alternative
  product and that causes a drop in demand
• Buying Power If the price rises the consumer
  will feel poorer and will not purchase as much of
  the product and that will cause a drop in demand

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The Law of Demand

• Diminishing Personal Value If the price is high
  people place a high value on the product but as
  the price falls consumers do not value the
  product as much and thus may buy more of it
• Diminishing Marginal Utility the point reached
  when the next item consumed is less satisfying
  than the one before

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Demand Schedule

• A table that lists the quantity of a good that a
  person will purchase at each price in a market
• Market demand schedule Shows the quantities
  demanded by all consumers in the market

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Demand Schedule
Price Quantity Demanded
100 2
80 6
60 10
40 14
20 18
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Demand Curve

• Graphic representation of a demand schedule
• Price is listed on the vertical axis and quantity
  demanded is listed on the horizontal axis
• Demand curves always slope downward and to the
  right (inverse relationship)
• Demand curves are limited only accurate for a
  specific set of conditions

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Demand Curve
PRICE
100

80

60

40

20

D1
QUANTITY
0
1 2 3 4 5 6 7 8 9 10 11 12
13 14 15 16 17 18 19 20
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Ceteris Paribus

• Ceteris paribus means all other things being
  equal
• When looking at a demand curve you can only
  isolate one thing.

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Changes in Demand
PRICE
Movement along the demand curve is called an
increase or decrease in the quantity demanded.
100

80

60

40

20

D1
QUANTITY
0
1 2 3 4 5 6 7 8 9 10 11 12
13 14 15 16 17 18 19 20
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Causes for theShift in Demand

• 1. Income
• Normal goods goods that consumers demand more
  of when their income increases
• For an increase in demand the demand curve shifts
  to the right
• For a decrease in demand the demand curve shifts
  to the left
• Inferior goods goods that consumers demand less
  of when their income increases
• Used cars or generic foods

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Causes for theShift in Demand

• 2. Consumer Expectations
• Current demand for a good is positively related
  to its expected future price
• If you expect the price to rise your demand
  increases
• If you expect the price to fall your demand
  decreases

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Causes for theShift in Demand

• 3. Population
• A rise in the population will effect the demand
  of a certain good
• Food, houses, cars
• 4. Consumer tastes and advertising
• Fads
• Advertising makes you want something

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Prices of Related Goods

• Demand can be affected by the change in the price
  of another good
• Compliments two goods that are bought and used
  together
• Substitutes goods used in place of one another