1.1. What is the left axis of a demand graph?What is the left axis of a demand graph?

2.2. What is on the bottom axis of a demand graph?What is on the bottom axis of a demand graph?

3.3. What is the relationship between the two axis on a What is the relationship between the two axis on a demand graph?demand graph?

4.4. What affects quantity demanded?What affects quantity demanded?

5.5. What is the tem for “all other things held constant”?What is the tem for “all other things held constant”?

6.6. According to the law of demand as water increases According to the law of demand as water increases in price the quantity demanded will _________.in price the quantity demanded will _________.

7.7. What is the same as a demand curve?What is the same as a demand curve?

8.8. Why do you think economists separate quantity Why do you think economists separate quantity demanded from Demand?demanded from Demand?

A change in the quantity A change in the quantity demanded is caused by a demanded is caused by a change in price affecting a change in price affecting a movement along the curvemovement along the curve Demand by an individualDemand by an individual

A change in demand is a A change in demand is a shift in the entire demand shift in the entire demand curve (Caused by five curve (Caused by five factors) factors) Demand by population as a Demand by population as a

wholewhole

Demand 1P

rice

Quantity

Pri

ce

Quantity

How many units an individual decides to buy at a given price.

Country A

0

50

100

150

200

250

1 2 3 4 5 6 7 8 9 10

Robots

Pizza

Price

Quantity

The determinants of demand are…The determinants of demand are… The tastes of consumersThe tastes of consumers The number of consumers in the marketThe number of consumers in the market The income of consumersThe income of consumers Prices of related goodsPrices of related goods Consumer expectations about future pricesConsumer expectations about future prices

If prices rise then we feel poorer and tend to If prices rise then we feel poorer and tend to buy less.buy less.

If prices fall then we feel richer and tend to If prices fall then we feel richer and tend to buy morebuy more

If our income rises we tend to buy more If our income rises we tend to buy more especially normal goods/less inferior goodsespecially normal goods/less inferior goods

If our income falls we tend to buy less If our income falls we tend to buy less especially normal goods/more inferior goodsespecially normal goods/more inferior goods

Inferior GoodsInferior Goods Any good that Any good that

consumers want to consumers want to buy less of when buy less of when income rises.income rises.

Pound SteakPound Steak Inverse relationship Inverse relationship

to incometo income

Normal GoodsNormal Goods Any good that Any good that

consumers want to consumers want to buy more of when buy more of when income rises.income rises.

Filet MignonFilet Mignon Direct relationship to Direct relationship to

incomeincome

Substitute goods are interchangeable - Substitute goods are interchangeable - Butter and margarineButter and margarine

When two products are substitutes, the When two products are substitutes, the price of one good and the demand for price of one good and the demand for the other are directly relatedthe other are directly related

Coke-PepsiCoke-Pepsi

Complementary goods “go together” – Complementary goods “go together” – DVD players and DVD discsDVD players and DVD discs

When two goods are complementary, When two goods are complementary, price of one and demand for the other price of one and demand for the other inversely inversely

Factor Event Shift Dm.Curve

Eq. Price Eq. Quant.

Tastes Consumers prefer product more Out Inc. Inc.

Consumers prefer product less In Dec. Dec.

Income Normal good-income increases

Normal good-income decreases

Inferior good-income increases

Inferior good-income decreases

Out

In

In

Out

Inc. Inc.

Dec. Dec.

Dec.Dec.

Inc. Inc.

Price of Related Goods

Substitute good-price increases

Substitute good-price decreases

Complement good-price increases

Complement good-price decreases

Out

Out

In

In

Inc. Inc.

Inc. Inc.

Dec. Dec.

Dec. Dec.

Price Expect-ations

Price level expected to rise

Price level expected to fall

Out

In

Inc. Inc.

Dec. Dec.

What affects Quantity Demanded?What affects Quantity Demanded? What affects Demand?What affects Demand? If the price of snickers increases what will If the price of snickers increases what will

happen to the demand for twix? What caused happen to the demand for twix? What caused the change in demand?the change in demand?

You just get a new high paying job, what kind You just get a new high paying job, what kind of goods would be more likely buy now?of goods would be more likely buy now?

More people enter the country what will More people enter the country what will happen to demandhappen to demand

Changes in Changes in Demand- “Shifts”Demand- “Shifts”

Warm up:Warm up:

Describe the Law of Demand, Describe the Law of Demand, include the substitution effect include the substitution effect and income effect in the and income effect in the description.description.

Changes in DemandChanges in Demand

Demand ShiftsDemand Shifts: Time allows factors : Time allows factors other than priceother than price to influence demand to influence demand significantly.significantly.

In Economics these factors can shift In Economics these factors can shift the entire demand curve of a product the entire demand curve of a product to the right or to the left.to the right or to the left.

Changes in DemandChanges in Demand

Determinants of Determinants of Demand—Demand—Factors that Factors that can cause the entire demand curve to shift to can cause the entire demand curve to shift to either the right or left.either the right or left.

1.1. Consumer tastes and preferencesConsumer tastes and preferences

2.2. Market sizeMarket size

3.3. IncomeIncome

4.4. Prices of related goodsPrices of related goods

5.5. Consumer expectationsConsumer expectations

Determinants of DemandDeterminants of Demand

1.1. Consumer Tastes and PreferencesConsumer Tastes and Preferences: : ex. Changes in music preferences ex. Changes in music preferences

If a groups popularity rises—demand curve If a groups popularity rises—demand curve shifts to the rightshifts to the right

If a groups popularity declines—demand If a groups popularity declines—demand curve shifts to the left.curve shifts to the left.

Determinants of DemandDeterminants of Demand

2.2. Market SizeMarket Size—The size of a market —The size of a market tend to affect demand. tend to affect demand.

Markets expand and contractMarkets expand and contract Nike launches new advertising campaign Nike launches new advertising campaign

for its SHOX running shoes.for its SHOX running shoes. If successful, curve shifts to rightIf successful, curve shifts to right

Determinants of DemandDeterminants of Demand

Government PolicyGovernment Policy can affect size of can affect size of markets—China trade policy examplemarkets—China trade policy example

New TechnologyNew Technology can affect market size can affect market size Ex. Invention of video and internet cell Ex. Invention of video and internet cell

phonesphones Old cell phone technology—demand Old cell phone technology—demand

curve shifts to the left.curve shifts to the left. New video technology—demand curve New video technology—demand curve

shifts to the right.shifts to the right.

Determinants of DemandDeterminants of Demand

3.3. IncomeIncome—Higher incomes generally —Higher incomes generally allows people to spend more money for allows people to spend more money for goods and services which causes the goods and services which causes the demand curve to shift to the right.demand curve to shift to the right.

Determinants of DemandDeterminants of Demand

4.4. Prices of Related GoodsPrices of Related Goods——A change in a A change in a products price can affect demand for the products price can affect demand for the products related goods.products related goods.

Ex. Butter/Margarine—Margarine is substituted Ex. Butter/Margarine—Margarine is substituted for butter when price of butter goes up.for butter when price of butter goes up.

Complementary GoodsComplementary Goods—Goods that are —Goods that are commonly used with other goods.commonly used with other goods.

Ex. Paint / Paintbrushes Ex. Paint / Paintbrushes Price of paint increases—demand for paint Price of paint increases—demand for paint and and

paintbrushes decreasespaintbrushes decreases

Determinants of DemandDeterminants of Demand

5.5. Consumer ExpectationsConsumer Expectations—Your —Your expectations for more future expectations for more future income influences your purchases income influences your purchases today.today.

Ex. Anticipate a raise in your Ex. Anticipate a raise in your salary salary OROR

If you anticipate being laid off !If you anticipate being laid off !

Demand Shifts-ExamplesDemand Shifts-ExamplesTell the determinant and show Tell the determinant and show what will happen—shift right or what will happen—shift right or left?left?

Price of Artificial Price of Artificial Sweetener Increases—Sweetener Increases—what happens to sugar what happens to sugar demand?demand?

Price

Quantity

Demand Shifts-ExamplesDemand Shifts-ExamplesTell the determinant and show Tell the determinant and show what will happen—shift right or what will happen—shift right or left?left?

1950’s 1950’s Musicals Musicals become “the become “the rage” among rage” among 15-20 year 15-20 year olds. Show olds. Show what might what might happen to DVD happen to DVD Sales in this Sales in this category.category.

Price

Quantity

Demand Shifts-ExamplesDemand Shifts-ExamplesTell the determinant and show Tell the determinant and show what will happen—shift right or what will happen—shift right or left?left? The The

government government does a does a retroactive tax retroactive tax cut cut accompanied accompanied by a $1500 by a $1500 rebate check rebate check for everyone for everyone over 18. What over 18. What happens to happens to demand for demand for movie tickets?movie tickets?

Price

Quantity

Demand Shifts-ExamplesDemand Shifts-ExamplesTell the determinant and show Tell the determinant and show what will happen—shift right or what will happen—shift right or left?left? Detroit—a rumor Detroit—a rumor

spreads that GM spreads that GM is insolvent is insolvent (doesn’t have (doesn’t have sufficient sufficient money) and will money) and will have to close have to close down 80% of its down 80% of its plants. What plants. What happens to happens to demand for demand for work shoes?work shoes?

Price

Quantity

Demand Shifts-ExamplesDemand Shifts-ExamplesTell the determinant and show Tell the determinant and show what will happen—shift right or what will happen—shift right or left?left?

The price of The price of motor oil for motor oil for automobiles automobiles becomes becomes 10x more 10x more expensive. expensive. What What happens to happens to demand for demand for gasoline?gasoline?

Price

Quantity