Demand

Report
Demand
Section 1
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What is demand?
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It is the desire, ability and willingness to buy
a product
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It is a microeconomic concept, which means:
◦ The part of economics that deals with behavior and
decisions making by SMALL units, such as
individuals
◦ It helps to explain how prices are determined and
decisions are made
I want I want I want
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As consumers we are smarter when we
research
As investors we are also smarter when we
research
It is essential to understand how a market
economy works
◦ To know what is popular and not so much
◦ What people are charging
◦ Is there a need for the product, etc.
◦ It is important for sound business planning
So why should I know before?
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Where is the demand!!!!
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The more demand the better
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You will not start a ski shop in Hawaii
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States that the quantity of a good or service
varies inversely to price
So in other words, price and quantity have an
opposite relationship
So, when price goes up, demand goes down
When price goes down, demand goes up
Price is an obstacle because it discourages
people from buying or doing something
 High prices are an obstacle

Law of demand
A demand schedule, is a listing that shows
various quantities demanded of a
particular product at all possible prices
that might prevail in a market at any time
 It shows what an individual is willing to
purchase
 Most people would buy more of something
as the price gets lower
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Draw One
Its time to graph!!!
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Also a table but reflects how much of a
good or a service all consumers are willing
and able to buy at each price in the
market
Market Demand Schedule
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Demand curve, is the demand schedule
shown graphically as a downward sloping
line
It is a graph showing the quantity
demanded at each and every price
It is represented as DD
The price is the Y or vertical side of the
graph
The demand for the product is the X or
horizontal side
The Curve
This is a curve that shows the quantities
demanded by everyone who is interested
in purchasing the product
 For our purposes in this class the market
will be small
 Shows the data found in a market
demand schedule and shows the quantity
that all consumers are willing to buy
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Market Demand Curve
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Popularity of a product is based on utility,
or useful or satisfaction that someone
gets from using the product
Diminishing marginal utility, the extra
satisfaction someone gets from the
product starts to diminish or go away
 We are not likely to purchase some things
for a 2nd, 3rd or 4th time
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Law of Diminishing Marginal
Utility
When the price of something goes up you
buy less of it because you feel poorer
 This is called the income effect, there is a
change in quantity demanded because of
a change in price that alters consumers’
income
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Types of demand changes
Well, many people may buy a Bon Jovi CD
or song instead of a concert ticket
because they can afford that
 This is called the substitution effect,
people substitute a lower priced item for
another for instance generic name brands

So what is the next option?
A change in the amount of a product that
consumers will buy because of a change
in price
 Each change in quantity demanded is
shown by a new point on the demand
curve
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Change in Quantity Demanded
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Change in demand causes a shift in the demand
curve because people are now willing to buy
different amounts of the product at the same
price
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Why the change? Depends, sometimes a change
in consumers tastes’, income, price of related
goods (substitutes and compliments), consumer
expectations and market size
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The more demanded the shift to the right, less
shift to the left
Second type of change
Bad weather?
 Terrorist attacks?
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Changes in Expectations
Section 2
Advertising
 Trends
 New products
 Changes in season
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For example: healthier lifestyle, typewriter
versus computer, fuel efficient cars,
baseball season
What affects the way we
purchase?
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Elasticity of demand, refers to how
responsive consumers are to a price
changes in a marketplace
Do I Buy? Do I need it?
Sometimes demand is referred to as
being elastic
 It means a change in price causes a
change in the quantity demanded (either
up or down)
 When demand is elastic you can see a
relatively large change in demand
 Ex. Fresh veggies
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Fat Pants
Inelastic means a given change in price
causes relatively small changes in
demand
 Ex. Salt, if the price is cut in half people
are not going to run out and purchase
large amounts of salt and vice versa
 Other examples, doctors, tobacco, gas,
alcohol
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Inelastic
PDA’s go on sale
 If price goes down 20% and quantity
demanded goes up 30% , then the
demand is elastic
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Reason: the percentage change in the
quantity demanded is greater than the
percentage change in price
Test elasticity
The change in price and quantity demanded
are the same
Unit Elastic
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1. urgency or need- can the purchase be
delayed….is it a luxury or a necessities
Example would be insulin
2. adequate substitutes available- if yes the
consumer can switch back and forth when
prices change
3. does the purchase use large amounts of
money?
Demand for salt is inelastic b/c a container is
less than a $,a car would be different
How do we determine a products
elasticity?
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Total revenue is the amount of money a
company receives for selling its products
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Total revenue test- compare total revenue
a business would receive when offering its
product at various prices
Take a Test

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