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Goal: Demand Summary Day
Warm-up: Demand Worksheet
Collect Demand curves/schedules Quiz on demand on Friday Wednesday – mini project
Definition – The ability and willingness of people to buy specific quantities of a good or service at alternative prices in a given time period
The price paid is a willing choice based upon perceived value to the buyer
The objective of the buyer is to get as much value as he can for the price paid
The Law of Demand states that generally people will buy more of a good or service at lower prices and less at higher prices
Demand Curves generally slope downward to the right
An inverse relationship exists between the price of a good and the quantity demanded in a given time period.
Reasons: substitution effect income effect
Change in quantity demanded Change in demand
Table 1
Price QD
$500 1,000
450 3,000
400 7,000
350 12,000
300 19,000
250 30,000
200 45,000
150 57,000
100 67,000
3-16Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
$500
450
400
350
300
250
200
150
100
50
10 20 30 40 50 60 70Quantity (in thousands)
D
Table 1 is the Demand Schedule
Figure 1 is the Graph of the Demand Schedule
Figure 1
The line is the Demand Curve
Table 1
Price QD
$500 1,000
450 3,000
400 7,000
350 12,000
300 19,000
250 30,000
200 45,000
150 57,000
100 67,000
3-5Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
$500
450
400
350
300
250
200
150
100
50
10 20 30 40 50 60 70Quantity (in thousands)
D
Table 1
Price QD
$500 1,000
450 3,000
400 7,000
350 12,000
300 19,000
250 30,000
200 45,000
150 57,000
100 67,000
3-7Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
$500
450
400
350
300
250
200
150
100
50
10 20 30 40 50 60 70Quantity (in thousands)
D
Table 1
Price QD
$500 1,000
450 3,000
400 7,000
350 12,000
300 19,000
250 30,000
200 45,000
150 57,000
100 67,000
3-11Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
$500
450
400
350
300
250
200
150
100
50
10 20 30 40 50 60 70Quantity (in thousands)
D
Table 1
Price QD
$500 1,000
450 3,000
400 7,000
350 12,000
300 19,000
250 30,000
200 45,000
150 57,000
100 67,000
3-17Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
$500
450
400
350
300
250
200
150
100
50
10 20 30 40 50 60 70Quantity (in thousands)
D
Figure 1
Price and Quantity Demanded are inversely related
Quantity Demanded is a point on the Demand Curve
Tastes and Preferences – The consumer’s desire for various goods and services
Income – The higher it is, the more we consume Other Goods – Availability and Price Expectations – for income; for price changes; for new
products; etc Number of Buyers – The more; bigger demand;
greater demand
Effect of fads:
An increase in the number of buyers results in an increase in demand.
A higher expected future price will increase current demand.
A lower expected future price will decrease current demand.
A higher expected future income will increase the demand for all normal goods.
A lower expected future income will reduce the demand for all normal goods.
Complement Products are two or more products that are generally consumed, or used, together• Hot dogs and Mustard• Peanut Butter and Jelly
If price of the primary good, say hot dogs, increases, the quantity demanded (Qd) of that good will decrease, and
A decrease in the Qd for hot dogs will reduce the demand for mustard, and ultimately the price of mustard will fall
So, the prices of complementary goods are said to be inversely related
Substitute Products are two or more products where one product may be substituted for another
• Pepsi Cola or Coca Cola• Canned tuna fish or canned chicken
If the price of Pepsi increases, the quantity demanded (Qd) will decline, and
The decrease in (Qd) for Pepsi will lead to an increase in the demand for Coca Cola which will lead to an increase in the price of Coca Cola,
So the prices of substitute products are said to be directly related
Price of coffee rises:
INELASTIC – CHANGE IN PRICE
= NO CHANGE IN DEMANDELASTIC – CHANGE IN PRICE
=MAJOR ADJUSTMENT IN DEMAND
Is it a necessity? Are there a low
numbers of substitutes?
Is it relatively cheap?
3 Yes?
Example: pacemakers
Is it a necessity? Are there a few number
of substitutes? Is it expensive? 3 Nos?
Examples: pizza
