WHAT IS DEMAND?

Demand: 1)The desire to own something AND 2) the ability to pay for it

When we talk about demand, we are referring to the activities of the consumer!

THE LAW OF DEMAND When a good’s price is

higher, consumers will buyless of it and vice versa

DEMAND SCHEDULES Demand Schedule: a table that lists the

quantity of a good a person will buy at each different price.

The quantity of a good a person will buy at each different price is the quantity demanded.

DEMAND CURVES Demand Curve: a graphic representation of

the information presented on a demand schedule

Vertical Axis = price

Horizontal Axis = quantity demanded

* Market demand curve/schedule: shows quantities demanded by all consumers in a market.

DEMAND CURVES

Two characteristics of a demand curve

1. Only relationship between price and quantity demanded is shown

2. Curve always slopes downward* As the law of demand suggests it

will!!

CHANGES IN QUANTITY DEMANDED

A demand curve is accurate as long as price is the only thing that changes and all else is held constant (ceteris paribus)

When only price changes, we move along the curve and there is a change in the quantity demanded

QUANTITY DEMANDED VS. DEMAND

Quantity demanded refers to a single price and is represented by a single point on the demand curve

Demand refers to all prices and is represented by the entire curve

SHIFTS IN THE DEMAND CURVE

In the real world, many factors besides price can influence consumers.

When other factors change, the entire curve shifts and there is a change in demand

If consumers buy more at every price, demand increases (shifts to the right)

If consumers buy less at every price, demand decreases (shifts to the left)

FACTORS (DETERMINANTS) CAUSING A SHIFT IN DEMAND

#1 Income If the average income for a market increases,

demand will increase and vice versaWe can use newspaper headlines to provide us

with examples: (Product = Skippy Peanut Butter)

“Recession over, more people going back to work as unemployment rate drops”

FACTORS CAUSING A SHIFT IN DEMAND

#2 Consumer Expectations If consumers expect the price of a

good to rise in the near future, their current demand will increase and vice versa

Example (Product = Snowboards, Month = Dec.): “Snowboard Clearance Sale After New Year!”

FACTORS CAUSING A SHIFT IN DEMAND

#3 Population If a market’s population increases, demand will

increase and vice versaExample: “Thousands Leaving State

EachWeek Due To High Home Costs”

FACTORS CAUSING A SHIFT IN DEMAND

#4 Consumer Tastes/Advertising If consumers suddenly desire a good

due to shifting tastes, demand will increase for that good and vice versa

Example (Product = Skippy Peanut Butter): “Skippy Peanut Butter Recalled Due To Salmonella Scare!”

FACTORS CAUSING A SHIFT IN DEMAND

#5 Price of Complementary Goods If goods A and B are usually bought

together and the price of good A rises, demand for good B will decrease and vice versa

Example (Product = salsa): “Price of Tortilla Chips Going Through The Roof!

FACTORS CAUSING A SHIFT IN DEMAND

#6 Price of Substitute Goods

If the price of Good A, which Good B can be substituted for, increases, demand for Good B, will increase and vice versa

Example (product = chicken): “Price of Beef Has Increased 20% in Three Months”

ACTIVITY 2: Shifts in Demand

Draw Graph From Board Here

Beef Consumption in May (start at curve C)1. Price of Beef to Rise in JuneFactor: _________________ Demand: _________ Curve: ____

* Move one curve at a time** Base your curve on the previous answer (don’t go back to C every time)*** Use each factor once (one will be used twice)

ACTIVITY 2: Shifts in Demand

2. Millions of Immigrants Swell U.S. Population3. Pork Prices Drop4. Government Says Beef Is Bad For Your Health5. BEEF PRICES FALL6. Americans’ Monthly Income Drops Again7. Shortage Increases Cost of Charcoal8. Beef Industry Begins Campaign Promoting Beefy

Benefits* There is one with no factor, and therefore, no

change in demand and you will stay at the same curve (consult Activity 1, part C, #5 for a hint)!

ACTIVITY 2: Shifts in Demand

Sunscreen In June (begin at curve C again)9. FDA Warns of Dangers of Skin Cancer as Summer Returns10. Beach Towels on Sale at Rite-On-Aid11. Government Raises Income Taxes To Pay For Bank Bailout12. Vacationers Pour Into Region For Summer Fun13. Hats and Long-Sleeve T-Shirts on Sale at Rite-On-Aid14. Cost of Sunscreen Decreases As Weather Turns Hot15. Sunscreen To Go On Sale Over 4th of July Weekend

ELASTICITY OF DEMAND Elasticity of demand: a measure of how

consumers react to a change in price If you generally keep buying a good when

price increases, and vice versa, your demand is inelastic (limited reaction to price change)

If you buy much less of a good because of a price increase, and vice versa, your demand is elastic (strong reaction to price change)

ELASTICITY OF DEMAND

An elastic demand curve will be more horizontal

An inelastic demand curve will be more vertical (totally vertical is perfectly inelastic)

FACTORS AFFECTING ELASTICITY

#1 Availability of Substitutes Few substitutes = inelastic

demandExamples: concert tickets,

medicines Many substitutes = elastic demandExamples: apples, apple juice

FACTORS AFFECTING ELASTICITY

#2 % of Budget Spent on Good If large % of budget is spent on good

= elasticExample: eating in restaurants If small % of budget is spent on good

= inelasticExample: dry beans, comet cleanser

FACTORS AFFECTING ELASTICITY

#3 Necessities versus luxuries Necessities = inelasticExample: milk, toilet paper Luxuries = elasticExample: overseas vacations, filet mignon

FACTORS AFFECTING ELASTICITY

#4 Change Over Time Consumers sometimes need time

to adjust to price changes, so demand can be inelastic in

short-term and elastic in long-termExample: gasoline

ELASTICITY AND TOTAL REVENUE

Total revenue = price multiplied by quantity demanded

If a business raises its prices and total revenue decreases, demand is elastic

If a business raises its prices and total revenue increases, demand is inelastic

* Elasticity of demand for a good varies at every price level

PRODUCT: PEANUT BUTTER

1. Jelly price increases2. Schools back in session; vacationers

return home ready to shop3. Almond butter price decreases4. Unemployment rate drops5. Peanut butter price to drop6. Peanut butter price drops7. Someone influential stars in new peanut

butter commercial

PRODUCT: STRAWBERRY JELLY

1. New Mall opens; over 1,000 jobs filled2. Strawberry Fields Forever hits number 1 on

charts over 40 years later!3. Strawberry jelly price increase expected soon4. Grape jelly price decrease5. Strawberry price increase6. New census data shows migration out of state 7. Peanut butter price increase

PRODUCT: PEANUT BUTTER

* Start at C. Arrange the headlines so that the final curve is C. Write the # of the headline, increase/decrease/no change, and the new curve for each.

1. Jelly price increases2. Schools back in session; vacationers return home3. Almond butter price decreases4. Unemployment rate drops5. Peanut butter price to drop6. Peanut butter price drops7. Psy stars in new peanut butter commercial