•What is one thing you would desire and why?

•Can you afford it? •Can you freely get it?

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DEMAND the desire, ability and willingness of consumers to buy a good or service

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DesireDo you want it?

If not, then you do not have

DEMAND for a product.

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AbilityCan you afford it? Do you

have the ability to pay for it?

If not, then you do not have

DEMAND for a product. 11

WillingnessAre you ready to buy it

voluntarily, without being forced?

If not, then you do not have DEMAND for a product.

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DEMAND the desire, ability and willingness of consumers to buy a good or service

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DEMAND SCHEDULE

A price / quantity schedule showing amounts of a good or

service consumers are willing and able to purchase at a set of prices

during a specific time period.

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DEMAND SCHEDULE

Price Quantity Demanded (Qd)

5 10

4 20

3 30

2 40

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DEMAND CURVE

A graph illustrating the amounts

of a good or service consumers are willing and able to purchase at a set of prices during a specific time period.

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Demand Curve

Qd

P

D1

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LAW OF DEMAND

Price and consumer demand have an inverse (opposite) relationship. If price goes up, consumer demand goes down. If price goes down, consumer demand goes up.

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Change in Quantity Demanded * Caused by an immediate change in

the price of the item you want to buy

* A change in quantity demanded is illustrated by movement ALONG a demand curve, from point to point as the price of the consumer good changes.

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Change in Quantity Demanded

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Example:

Chicken wings are regularly 15 cents a piece, and you usually eat 20 wings. Today wings sell for 10 cents a piece, so you buy 30 wings. At 9pm, wings will sell for 5 cents each, and you will buy 40 wings. The change in price causes an increase in your quantity demanded.

Change in Quantity Demanded is caused by one of the following: • The Income Effect: the changed price makes you feel like you

have more money in your pocket to spend, causing you to purchase more of the item. (p87)

• EXAMPLE: The donuts you wanted to buy are on special. You can buy 2 for the price of one (BOGO). The savings make you feel like you have MORE MONEY, so you BUY MORE!

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Change in Quantity Demanded is caused by one of the following: • Substitution Effect: relative to other goods/services, the price

of the G/S you buy is less, causing you to purchase more of it. (p87)

• EXAMPLE: a new CD costs you $15, but I-Tunes offers single songs for 99 cents. Rather than buy a CD, you purchase 10 songs on i-tunes.

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CHANGE IN DEMAND

• A change in Demand is illustrated by a new demand curve.

• At every price, more of a good or service is purchased.

• Or, at every price, less of a good or service is purchased.

• Change in Demand is caused by one of the determinants of demand 23

Demand Curve

Qd

P

DD2 D1

D1: Increase in Demand from original D to D1D2: Decrease in Demand from original D to D2

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Change in Demand

• Caused by change in CONSUMER INCOME (p88)

• Your spending habits change with your income

• EX: You were making $8/hr; now you are making $16/hr; in 3 years, you’ll make $50/hour

• How is celebrity spending different from your spending habits?

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Change in Demand

• Caused by Consumer TASTES AND PREFERENCES – trends (p88)

• As an item becomes more popular, demand increases; demand decreases as the good loses favor

• EXAMPLES: • Walkman v. I-POD• Pet Rock v. Webkinz• VCR v. DVD Player

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Change in Demand

• Caused by the Price of RELATED PRODUCTS (substitutes and compliments) (p88-89)

• Substitutes – You can buy DVDs rather than videos

• Compliments – Maple trees get a fungus and die; no maple syrup; the demand for pancake and waffle mix decreases

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Change in Demand• Caused by PRICE EXPECTATION – the anticipated FUTURE

price of the product (NOT in text book)• You decide to buy or not buy based on what you think will

happen in the market at a future time• EXAMPLE : You expect the price of the Wii to decrease after

Christmas. How does that affect demand today?

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Change in Demand

• Caused by the NUMBER OF CONSUMERS or buyers in the market (NOT in text book)

• EXAMPLE: What is the demand for popcorn in a movie theater? Outside?

• EXAMPLE: What is the demand for a college degree today? 50 years ago? 29

Change in Demand

• Is caused by the SEASONS, which affect our choices for goods and services (NOT in the text book)

• EXAMPLE: What is your demand for ice cream in July? In January?

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DETERMINANTS OF CHANGE IN DEMAND

•Taste and Preference•Income•Number of Consumers•Price of Related Goods•Price Expectations•Seasonal

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CHANGE IN QUANTITY DEMANDED

OCCURS ONLY WHEN THERE IS AN IMMEDIATE CHANGE IN THE PRICE OF THE G/S YOU ARE BUYING 32

Change in QD vs. Change in D

1. Beef prices fall; consumers buy more. 2. Millions of illegal immigrants swell U.S. population.3. Scientists expect chicken virus to affect 30% of U.S. farms.4. Buy one, get one free sale on sweaters at the GAP5. America swears off bread and pasta due to Atkins Diet6. You lose your job. 7. Compact disks replaced by i-Tunes

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Diminishing Marginal Utility

•How useful is something? •First piece of pizza? 5th piece of pizza?

•Working with 1 other person….2…..5???

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