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Determinants of demand
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Determinants of demand

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  • 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

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