Factors Affecting Demand

Chapter 4

Section 2

What kinds of things will affect the quantity

demanded of any product?

America’s Pastime?

Nationwide, the average number of children playing America’s once-favorite pastime has tumbled nearly 20%. Sales of everything from balls to baseball cards are falling.

Sporting Goods Manufacturers Association

The Next Wave?

Retailers are looking to the next big wave of consumers to drive demand. Marketers hear a demographic drumbeat: The current bulge of 27 million teens is expected to swell 10% by 2010. Companies are rushing to quantify every aspect of the adolescent lifestyle.

Wall Street Journal

The Income Effect

Movie Tickets

$ 8.00 $ 6.00

x 5 x 5

$40.00 $30.00

You are $10 “richer.”

What would you do with the $10?

• Would you buy more tickets?

• Would you buy popcorn and soda?

• Would you save it?

The Income Effect

• The same is true in reverse.

• If the price goes up, you “feel” poorer and may buy fewer tickets.

• You may even be influenced by your feelings to buy less of other things as well.

The Substitution Effect

If an appropriate substitute is available:– Consumers tend to replace more costly

items with less expensive ones.

– The quantity demanded changes because of the change in the relative price of the products.

Change in Demand

Sometimes something happens that changes the entire demand curve.

Demand may go up or down.

May be predictable.

May be unexpected.

Changes in Consumer Income

Income changes will cause a change in demand.

• What happens if you get a raise?

• What happens if you lose your job?

Changes in Consumer Tastes

• Advertising• Fashion trends• New products• New technology• Consumer concerns

– Environment– Health

Changes in Substitutes

• If the price of a related product changes, it may affect the demand for your product.

• Butter – Margarine

• High gas prices are affecting sales of SUV’s.

Complementary Goods

• Increased use of one product increases the use of the other.

• Computer prices go down, so we buy more software to go with our new computers.

• Air fares drop, so we buy flights to vacation spots, and then buy clothes, accessories, cameras, etc., for our trip.

Changes in Expectations

• Announcement of new advancement in technology

• World events change supply in oil.

• A developer announces a new project in your area.

Change in Population

• If population increases, demand for almost everything increases.

• If population decreases, demand decreases.

ASSIGNMENT

Write ½ page about how demand changes could affect your entrepreneurial project.