Simple Concepts of Demand

1. Simple Concepts of Demand

2. Demand: amount of a good or service people are willing and able to buy at a given price and during a certain time period

3. Law of demand • Law of demand: an increase in price will bring a decrease in quantity demanded, while a decrease in price will cause an increase in quantity demanded

4. It all comes down to common sense • If DVDs go from an average of $12 per unit to $24 per unit, the quantity demanded for DVDs will inevitably go down, other things being equal

5. If there is a big sale on DVDs, and they drop in price to $8 apiece, the quantity demanded would be much greater • It would show through sales figures • A change in price will bring a change in quantity demanded

6. Relationship between price and quantity • Price: $250 Quantity: 0 • $230 1000 • $210 2000 • $190 3000 • $170 4000 • $150 5000 • $130 6000

7. As figures in Price go up, figures in Quantity go down • You can graph information and discover the nature of the demand of a certain product

8. Question: In usual circumstances, your school sells 3000 tickets to its football games at $5 each. Fill out the chart for what you believe the quantity demanded would be as the ticket prices rose or fell

9. Price in $ Amount Sold • 3 _______ • 4 _______ • 5 3000 • 6 _______

10. Change in Price Affect Quantity Demanded • Think of a rubber band • The more elastic it is, the more it can stretch • If a product changes its price, we expect there will be a change in the quantity demanded

11. If a product changes its price, we expect there will be a change in the quantity demanded • The degree of that change is a product’s elasticity

12. If prices changes only a little, the quantity demanded changes a whole lot • Product would have an elastic demand • This is because people will make the decision not to buy the product if it does not fit in their budgets

13. On the other hand, there are products that are necessary to our survival- we call these necessities • If you have a pacemaker and had to replace the battery every so often, a slight jump in price would not dissuade you from buying one

14. Paying a lot for a battery is better than an massive heart attack any day • No matter what happens to price, the quantity demanded will remain rather constant

15. When price increases or decreases, quantity hardly changes • This would be price inelastic

16. How inelastic the demand for a certain product is depends greatly upon how much people need or want the product • Utility is the usefulness or satisfaction that people get from a good or service

17. Coffee in the morning might have a very low utility for you while the thought of a donut gets you giddy • Therefore, donuts would have more utility

18. One would expect you would have a constant desire for donuts- this is not the case

19. Imagine the feeling you get when you eat that first one- it’s your favorite- glazed, with a jelly filling • The first one is magic going down, but as you eat the second one, you find that it is not as satisfying.

20. Subsequently, each one that you gorge loses its appeal more and more • This is known as diminishing marginal utility • Utility you get from pastry to pastry will decrease with each one you eat

21. When you venture out on your own into the “real world,” what do you suppose you will eat? • Many college students who live on a shoestring budget eat generic goods and inexpensive foods like mac and cheese

22. They dream of a day when their budgets no longer constrain their diets • Products one buys less of when income rises are called inferior

23. Income effect on demand also has a flip side • As people make more money, there are some products they tend to buy more often- these are called normal goods

24. Most students don’t have money for luxurious items like steak and shrimp- but once they graduate and begin collecting a paycheck, their budgets may permit it

25. List 5 products that have elastic demands and list 5 products that have inelastic demands

26. Demand Curves Move! • Over a period of time, the simple demand curves may shift • In other words, it is possible for sales of DVDs to increase while remaining at a set price of $12 apiece

27. Maybe the actor/actress is more popular, maybe the average movie buyer has more money to spend • Perhaps the consumers will begin to prefer another medium

28. We call these factors that change the quantity demanded without a change in price the determinants of demand • There are five determinants of demand

29. Consumer preferences- in 1987, New Kids on the Block sold tons of merchandise. Tastes have changed in the last decade or so, they sell next to nothing outside of garage sales any more

30. Market Size: As baby boomers start to reach golden years, the demand for Depends Undergarments will go up- prices can remain the same, but with more senior citizens, the quantity demanded will increase

31. Income: If the average income of the average family goes down, then we can expect sales in the school bookstore to drop • Students will simply not have the money to spend on sweatshirts and diskettes

32. Prices of related goods- if the price of Skippy goes up, people will simply buy more Peter Pan or Jif. We call products easily replaced with others substitutes

33. On the other hand, if the price of all peanut butter goes up by five times, people will buy less • If that happens, Smuckers will no doubt experience a sharp decrease in sales

34. Peanut butter and jelly are often sold in conjunction with other another- we call them complements

35. Consumer Security: most adults have a certain amount of anxiety about the future • When people feel good about the future, they tend to spend money

36. When they feel that they might lose their jobs or that a depression might be coming soon, they will not buy as much • This would decrease the amount of sales a store would have while they never adjusted their price

37. Question: Considering school cafeteria chicken patties, for each of the five determinants, state one instance for each of the five determinants in which demand would increase or decrease