Demand: Ability and Willingness to Buy

1. Demand: Ability and Willingness to Buy

2. Demand Schedule • What did you notice? • Is there a pattern? Describe it. • What does the data tell us? • Why do you think this is so? • For those of you who would not purchase any, why? • What does this tell us about other influences on economic decision making?

3. Data • Data is the story behind how price influences behavior • “ability to purchase” • “willingness to purchase” • Both influence economic decisions • Most storybooks have pictures, so you are going to see how the data (the story) can be represented by a picture (demand curve).

4. Demand curve • Demand curves illustrate the inverse, or negative relationship between price and quantity demanded • When price increases, qty. demanded decreases and vice versa)

5. The Basics of Demand • Economists study markets. • A market is any place where people come together to buy and sellgoods or services. • “Demand” - the willingness AND ability of consumers to buy a good or service at a specific period of time • Willingness: ready to buy a good or service • Ability: having the means to buy the good or service

6. The Law of Demand • The quantity demanded varies inversely with price, other things constant (a.k.a. Price Effect) Price = Quantity demanded Price = Quantity demanded

7. How We Look at Demand -- The Demand Schedule and Curve • A schedule is a table that lists the quantity of a good that a person will purchase at each price. This is the STORY. • The vertical axis ALWAYS shows price • The horizontal axis ALWAYS shows quantity demanded • Plot the points on the schedule • Connect the dots!! • The Demand curve slopes Down. • Now you have created a PICTURE OF THE STORY. P D Q

8. What is the difference between demand and quantity demanded? • Demand is a schedule (the story) or curve (the picture) that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time • Example: Michael has a demand for ice cream. This means he has the willingness AND ability to buy ice cream. • Quantity demanded refers to how many units will be demanded at a particular price. • Example: Suppose the price of ice cream is $3 per cone and Michael buys two. Therefore two ice cream cones is the quantity demanded at $3.

9. Movement Along a Demand Curve Versus a Shift of the Curve • Remember there is a difference between quantity demanded and demand. • Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether. • A change price creates a change in the quantity demanded, other things constant. • This causes a movement alongthe demand curve. • A change in one of the determinants of demandcauses a change in demand. • This causes ina shiftof a demand curve.

10. Change in Quantity demanded Price Quantity

11. Practice Problem #1 What would happen to the demand of bottles of an energy drink if the prices doubled? • Increase or decrease in quantity demanded (Qd)?

12. Answer to Practice Problem #1 What would happen to the demand for energy drinks if the price doubled? • Decrease in quantity demanded

13. How would it look on the graph? Price (P) Quantity (Q)

14. Practice Problem #2 What would happen to the demand of bottles of an energy drink if they went on sale so that price per bottle decreased? • Increase or decrease in quantity demanded (Qd)?

15. Practice Problem #2 What would happen to the demand of bottles of an energy drink if they went on sale so that price per bottle decreased? • Increase in quantity demanded (Qd)

16. How would it look on the graph? Price (P) A $1.00 B $.50 D 0 4 8 12 16 Quantity (Q)

17. Why do changes (Δ) in price cause movement along the demand curve? Price (P) Demand (D) Quantity (Q)