DEMAND

DURIANP 50/KILO

DURIANP 30/KILO

OBJECTIVES

1. Understand and analyze the likely change in demand given changes in price or changes in the price of related goods such as substitutes and compliments goods, income, taste and preferences, and expectations.

2. Apply the concept and the law of demand by creating their personal demand curve and schedule as guide for daily economic decision-making activity.

TERMS• Demand

• Law of Demand

•The quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time.

•As the price of a good or service rises (or falls), the quantity of that good or service that people are willing and able to buy during a certain period of time falls (or rises).

The Law of DEMAND

All things being equal,

IF THEN

P Qd

INVERSE RELATIONSHIPCETERIS PARIBUS

Role of Consumer DEMAND CURVE

QTY

Price per kilo of Durian

Kilo of Durian

20

30

40

50

5 10 15 20

P

D

PRICE QUANTITY

P 20 18

P 30 10

P 40 6

P 50 3

INCOME EFFECT

A rise in price for the Big Mac will cause an impact to a

person’s income

P Qd

SHIFTS in the Demand Curve

P 10

25 4010

D

What factors would cause

a SHIFT in the demand for coffee?

P

SHIFTS in the Demand Curve

P 10

25 40

D

Income

What would happen if you

receive an increase in income?

More coffee is demanded at P10

D2

NORMAL GOOD

You could buy

more coffee

P

SHIFTS in the Demand Curve

P 10

25 0

D

Income

What would happen if your income were

to increase…BUT demand went

down?

INFERIOR

GOOD –

You could buy

better coffee

Less coffee is demanded at P10

D2

10

If you would buy the same amount of a good/service regardless of a change in income you would have a

NEUTRAL GOOD

(perhaps like toilet paper or toothpaste)

P

SHIFTS in the Demand Curve

P 10

25 0

D

Income

What would happen if your income were

reduced?

Less coffee is demanded at P10

D2

10

P

SHIFTS in the Demand Curve

P10

25 40

D What if you began to enjoy coffee

more than before?

More coffee is demanded at P10

D2

P Change in Preferences

SHIFTS in the Demand Curve

P10

25 0

D

Change in Preferences

What if you started to get sick of drinking coffee?

Less coffee is demanded at P10

D2

10

P

SHIFTS in the Demand Curve

P 10

25 0

D

Expectations

What if you knew there was going to be a sale on coffee

next week?Less coffee is demanded at P10

D2

10

P

SHIFTS in the Demand Curve

P 10

25 40

D

Expectations

What if you knew that a sale on

coffee were ending tonight?

More coffee is demanded at P10

D2

LAST DAY

P

SHIFTS in the Demand Curve

P 10

25 0

D

Price of Related Goods

Less coffee is demanded at P10

D2

10

SUBSTITUTES

P

SHIFTS in the Demand Curve

P 10

25 40

D

More coffee is demanded at P10

D2

SUBSTITUTES

Price of Related Goods

P

SHIFTS in the Demand Curve

P 10

25 40

D

More coffee is demanded at P10

D2

COMPLIMENTS

Price of Related Goods

What if the price of donuts went

down?

P

SHIFTS in the Demand Curve

P 10

25 0

D

Price of Related Goods

Less coffee is demanded at P10

D2

10

COMPLIMENTS

What if the price of donuts went

up?

P