Determinants of demand

6,569 views
6,114 views

Published on

0 Comments
6 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
6,569
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
194
Comments
0
Likes
6
Embeds 0
No embeds

No notes for slide

Determinants of demand

  1. 1. Increase in demand graph Decrease in demand graph What factors affect demand? Action buttons allow easy access to commonly used slides from any point in presentation.
  2. 2. Increase in demand graph Decrease in demand graph Price Determinants of Demand Income Number of Buyers Prices of other goods Tastes Expectations about future Quality Supply?
  3. 3. Increase in demand graph Decrease in demand graph PriceDeterminants of Demand Income Number of Buyers Prices of other goods Tastes Expectations about future Quality Supply?
  4. 4. Increase in demand graph Decrease in demand graph Price • Price is the most important determinant of demand. • A “demand curve” plots combinations of prices and quantity demanded. • A shift in price causes a shift along the demand curve
  5. 5. Increase in demand graph Decrease in demand graph Price (continued) • A change in price causes a shift along the demand curve. • A shift along the demand curve is referred to as a “shift in the quantity demanded.” • A shift in any other variable except price causes a shift in the entire demand curve. • A shift in the entire demand curve is referred to as a “shift in demand.”
  6. 6. Increase in demand graph Decrease in demand graph Income • Changes in income can increase or decrease demand. • A good whose demand decreases with an increase in income is called an “inferior good.” • A good whose demand increases with an increase in income is called a “normal good.”
  7. 7. Increase in demand graph Decrease in demand graph Examples of changes in income • An increase in income will reduce the demand for ramen noodles or generic products. • An increase in income will increase the demand for cars or clothing. • An increase in income will significantly increase the demand for air travel or jewelry.
  8. 8. Increase in demand graph Decrease in demand graph Prices of other goods • Changes in the prices of other goods can increase or decrease demand. • A good that causes an increase in the demand for another good when its price increases is called a “substitute good.” • A good that causes a decrease in the demand for another good when its price increases is called a “complementary good.”
  9. 9. Increase in demand graph Decrease in demand graph Examples of changes in other prices • An increase in the price of peanut butter will reduce the demand for jelly. Peanut butter and jelly are complements. • An increase in the price of Pepsi will increase the demand for Coke. Pepsi and Coke are substitutes.
  10. 10. Increase in demand graph Decrease in demand graph Number of buyers • An increase in the number of potential buyers will increase the demand for the good. • For example, the demand for land increases as the population increases. • Similarly baseball tickets are generally more expensive in larger cities.
  11. 11. Increase in demand graph Decrease in demand graph Future Prices • An increase in the expected future price of a good increases current demand. • A decrease in the expected future price of a good decreases current demand. • For example, when a good is temporarily put on sale, people stock up on the good.
  12. 12. Increase in demand graph Decrease in demand graph Tastes • Demand curves can shift due to changes in tastes over time. • For example, demand for cereal may be high in the morning but low at night.
  13. 13. Increase in demand graph Decrease in demand graph Quality • Demand curves can shift due to changes quality. • At a given price, demand for Pizza hut’s pizza is higher than the demand for Papa John’s. • Similarly, CDs cost more than cassettes because the music is of higher quality.
  14. 14. Increase in demand graph Decrease in demand graph Supply? • Demand curves do not shift due to changes supply. • Shifts in supply change the equilibrium price causing a shift along the demand curve. • Shifts in supply cause a change in the quantity demand not a shift in the demand curve.
  15. 15. Increase in demand graph Decrease in demand graph Increase in demand 0 5 10 15 20 25 30 35 40 0 2000 4000 6000 8000 10000 12000 14000 Quantity Price Old demand New demand Supply • An increase in demand shifts the demand curve to the right. • Equilibrium price increases. • Quantity demanded increases.
  16. 16. Increase in demand graph Decrease in demand graph Decrease in demand 0 5 10 15 20 25 30 35 40 0 2000 4000 6000 8000 10000 12000 14000 Quantity Price Old demand New demand Supply • A decrease in demand shifts the demand curve to the left. • Equilibrium price falls. • Quantity demanded falls.

×