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DEMAND

DEMAND. What is demand?. Demand effects everything from ‘A’ Apples. What is demand?. TO Z Zebras. Demand is one side of the well-known economic “equation” of supply and demand. An economic phenomenon. Demand does not reflect what households want or need.

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DEMAND

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  1. DEMAND

  2. What is demand? Demand effects everything from ‘A’ Apples

  3. What is demand? TO Z Zebras

  4. Demand is one side of the well-known economic “equation” of supply and demand. An economic phenomenon

  5. Demand does not reflect what households want or need. Demand reflects only what households are WILLING and ABLE to pay for.

  6. DEMAND REFERS TO THE QUANTITES OF A GOOD THAT CONSUMERS ARE WILLLING AND ABLE TO PURCHASE AT VARIOUS PRICES DURING A GIVEN PERIOD OF TIME

  7. LAW of DEMAND HUMAN NATURE

  8. LAW of DEMAND • As the prices of a good rises, the quantity demanded by consumers fall • As the price of a good decreases the quantity demanded rises

  9. LAW of DEMAND

  10. Demand • There are THREE economic concepts that explain the Law of Demand and these concepts account for the inverse relationship that changes in the priceof goods/services have on the quantity demanded: • Income/ Purchasing Power Effect • Substitution Effect • Diminishing Marginal Utility

  11. Income/Purchasing Power Effect • Amount of money a person has to spend on goods/services called purchasing power. • It is not a change in a person’s income but a change in purchasing power (real income) because of a change in the good/service. Pr. Pur.Pwr. QD Pur.Pwr. QD Pr.

  12. Income/Purchasing Power Effect Either a lot of $$$$$$$ OR No $$$$$$$$$$$

  13. Substitution Effect • To substitute a lower priced product/service (generic) for a normal product/service that is more expensive. Price A (NORMAL) If there is a substitute than the quantity demanded of that normal good will decrease. QD What happens if there is not a substitute?

  14. Substitution Effect

  15. Diminishing Marginal Utility • What is UTILITY? • The usefulness of a good/service or the satisfaction one gets from that good/service. • As the price of a good/service decreases, the quantity demanded increases, but for each successive decrease in price, the quantity demanded will increase but at a smaller rate. • You will get to a point where the quantity demanded will reach zero- at that point you have no more utility for that good/service. D.M.U.

  16. Diminishing Marginal Utility

  17. A Change in Demand Review- Change in the Quantity of Demand A CHANGE IN PRICE! Income Effect Diminishing Marginal Utility Substitution Effect *Just a SNAPSHOT- ONLY PRICE MATTERS- Ceteris Paribus

  18. QUANTITY DEMANDED • The amount consumed/purchased of a G/S at a specific price at a given time

  19. QUANTITY DEMANDED

  20. CHANGE IN PRICE IS MOVEMENT ALONG THE CURVE

  21. DEMAND

  22. DEMAND Demand schedule This is a numerical representation of the inverse relationship between specific relative prices and quantity demanded. Demand curve This is a graphic representation of the demand schedule. A negatively sloped line showing the inverse relationship between relative price and quantity demanded.

  23. DEMAND CHANGE IN PRICE IS MOVEMENT ALONG THE CURVE

  24. Determinants of Demand SHIFT HAPPENS

  25. Determinants of Demand A SHIFT IN A DEMAND CURVE MEANS THAT AT EVERY PRICE, CONSUMERS BUY A DIFFERENT QUANTITY THEN BEFORE

  26. Shifts in Demand D3 D2 The Determinants of Demand Price Increase – Right Shift Decrease –Left Shift D1 Q/Units

  27. A Change in Demand • A change in the quantity that people plan to buy when any influence other than the price of the good changes. • There is a new demand schedule and a new demand curve. • This shift in the demand curve causes an overall change in the level (quantity) of demand at each and every price.

  28. Determinants of Demand • FACTORS THAT SHIFT THE DEMAND CURVE • Change in consumer tastes and preferences • Change in the number of buyers/population • Change in consumer incomes (↑ or ↓) • Change in the prices of complementary • and substitute goods—Relative Goods • Change in consumer expectations (future)

  29. DEMAND • Taste and preferences of consumers • Related goods prices • (complements and substitutes) • Income of buyers* • Buyers • (number of /population: increase/decrease) • Expectations for the future

  30. Understanding Shifts of the Demand Curve • Increase = right, Decrease = left • M.E.R.I.T. shifts demand • Market size (number of consumers) • Expectations • Related prices (complements, substitutes) • Income (normal, inferior) • Tastes

  31. *Types of Goods • Inferior • Normal • Superior

  32. *Types of Goods • Inferior –tap water • Normal –bottled water • Superior –sparkling water

  33. A SHIFT IN A DEMAND CURVE MEANS THAT AT EVERY PRICE, CONSUMERS BUY A DIFFERENT QUANTITY THEN BEFORE

  34. Change in Quantity Demand vs. Change in Demand

  35. Change in Quantity Demand vs. Change in Demand • When you draw a shift of the demand, be careful to draw the arrows in the horizontal direction. • Follow the text by always describing shifts of demand and supply curves as “rightward” or “leftward.” Do not say that the curves shift “up” or “down” or “inward” or “outward.”

  36. CHANGE IN PRICE IS MOVEMENT ALONG THE CURVE A SHIFT IN A DEMAND CURVE MEANS THAT AT EVERY PRICE, CONSUMERS BUY A DIFFERENT QUANTITY THEN BEFORE

  37. DEMAND MOVEMENT and SHIFT

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