Different Goods Intro Diagram Causes Exceptions More Demand Diagrams! & changes in the conditions of demand
Lesson Objectives Different Goods Intro Diagram Causes Exceptions • To review factors that cause a MOVE and a SHIFT in Demand. • To be able to apply the concepts of different types of goods to issues of demand.
Basic Demand curve… Different Goods Intro Diagram Causes Exceptions • The quantity of a product consumers are willing and able to buy at different prices in a specified time period • Normally there is an inverse relationship between the price of good X and the quantity demanded of good X
Different Goods Intro Diagram Causes Exceptions Movements along a demand curve
The Demand Curve Price P2 P1 Demand Quantity Demanded Q2 Q1
A contraction of demand Price A contraction of demand due to a higher price P2 P1 Demand Quantity Demanded Q2 Q1
An expansion of demand Price An expansion of demand due to a lower price P1 P2 Demand Quantity Demanded Q1 Q2
Different Goods Intro Diagram Causes Exceptions Exam skills in drawing diagrams • Do not draw too small or too big! • Keep it neat! • Always label axis with a 0, and top/bottom titles. • MUST label curve(s) • Draw on movement arrows (on the axis)
A change in price causes a….. movement along the demand curve! Different Goods Intro Diagram Causes Exceptions What comes first? The change in price or a change in demand?
Different Goods Intro Diagram Causes Exceptions Shifts in Demand
Decrease in Demand Increase in Demand P1 D2 D1 D3 Quantity Demanded Q3 Q1 Q2 Different Goods Intro Diagram Causes Exceptions Price What can cause demand to increase or fall, despite the price remaining the same?
Different Goods Causes of an outward shift in demand Intro Diagram Causes Exceptions • A rise in the real incomes of consumers • An increase in the price of a substitute good (i.e. a competing product) • A fall in the price of a complementary good • A change in consumers’ preferences towards the good • An increase in the size of the total population • A fall in interest rates • A rise in consumer confidence • Social changes which affect total demand for a product
Different Goods Intro Diagram Causes Exceptions Group work • You will be given an image slide to work in groups of 3’s • You need to be able to EXPLAIN the specific factors that would influence an increase in market demand for the good/service on your sheet! • After 5 mins you will need to feedback your ideas to the group – ‘elect’ a spokesperson in your group!
Different Goods Intro Diagram Causes Exceptions • Using your whiteboard…. • Sketch some demand curves for the following situations and think of how you would expect the demand curve to change…. Individual work….
Different Goods Intro Diagram Causes Exceptions QUICK FIRE DRAWINGS… • The demand for choc following campaign on the dangers of obesity • The demand for oranges following a medical research linking a reduction in colds and eating/drinking oranges.
Different types of goods Different Goods page 01 page 02 page 03 Exceptions • Normal • Substitutes • Complementary • Inferior • Ostentatious
Substitutes Different Goods page 01 page 02 page 03 Exceptions • Substitutes are goods in competitive demand • They are replacements for another product • For example, a rise in the price of Esso petrol (other factors held constant) should cause a substitution effect away from Esso towards Shell or other competing brands
Different Goods page 01 page 02 page 03 Exceptions What could be a substitute product for: • Esso petrol? • BT phone line? • Budget car rental? • Fresh salmon? • Beer? • Nike trainers?
Changes in price of Substitutes Different Goods Intro Diagram Causes Exceptions page 01 page 02 page 03 Price of Texaco petrol Price of Shell petrol P2 P1 P1 D2 Demand D1 Output (Q) Q2 Q1 Q1 Q2 Output (Q)
Complements Different Goods page 01 page 02 page 03 Exceptions • Complements are said to be in joint demand • Examples include: fish and chips, DVD players and DVDs, iron ore and steel • A rise in the price of a complement to Good X should cause a fall in the demand for X
Different Goods page 01 page 02 page 03 Exceptions What are the complement goods to these items? A change in the demand for these goods will directly effect the demand for their complementary goods. • To fish and…. • DVD players • Ipods • Flights from London to New York • A fall in price for digital camera The extent to which a change in the price of one good leads to a change in the demand for a complement is determined by the cross-price elasticity of demand.
Inferior Goods Different Goods page 01 page 02 page 03 Exceptions • For normal products, more is demanded as income rises, and less as income falls • There are exceptions called inferior products • They are often cheaper poorer quality substitutes for some other good • With a higher income a consumer can switch from the cheaper substitute to preferred alternative • As a result, less of the inferior product is demanded at higher levels of income
Ostentatious Goods Different Goods page 01 page 02 page 03 Exceptions • Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people! Jimmy Choo £460 Dolce & Gabbana £250
Ostentatious Goods Different Goods page 01 page 02 page 03 Exceptions Olympic Gold medallist rewarded with Jimmy Choo shoes!
Different Goods Exceptions Intro Diagram Causes Exceptions • Some goods & services do not have an inverse relationship with price… • Ostentatious goods – the lower the price, the target customers will not want the product, but the higher the price – the higher the demand! • Speculative demand - potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit
Different Goods Exceptions Intro Diagram Causes Exceptions • Giffen Goods - special type of inferior good may exist, which disobeys the "law of demand". • When the price of a Giffen Good decreases, the demand for that good decreases. • This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand. • The observed demand curve would slope upward, indicating positive elasticity.
Different Goods Intro Diagram Causes Exceptions On your whiteboard…. • On one side write OUTWARD • On the other write INWARD • Then be prepared to decide what the effect of the following will have on demand.
Different Goods What if….. Intro Diagram Causes Exceptions Inward or outward shift? • Substitute products’ price increase? • Incomes fall – what will be the effect on ‘normal’ goods? • A product has a major advertising campaign? • Science proves that regular mobile phone use damages memory! • Price of newspaper increases…..? Careful… In your notes– draw a diagram to show the ‘impact’ on the demand schedule(s) for each of these situations
Changes in price of Substitutes Price of Texaco petrol Price of Shell petrol P2 P1 P1 D2 Demand D1 Output (Q) Q2 Q1 Q1 Q2 Output (Q)
Different Goods Intro Diagram Causes Exceptions Have I mentioned my fascination for shoes yet? Homework… • Research and find an three examples of a good/service… • ‘normal’ goods • inferior goods • ostentatious goods • Eg Shoes… Christian Lacroix Large bow shoe boots £365 Normal?
What factors are influencing market demand for holiday cottage in UK?