Introduction to Demand and the factors that determine demand
Through various incentives, CONSUMERS seek to maximize their satisfaction Consumers want to get the most for their moneyThe behavior of consumers is called . . .
• The amount people are willing to buy at ALL prices.• The ENTIRE schedule or curve is the demand 12 Price Quantity 10 10 20 8 Price 6 8 40 4 6 60 D 2 4 80 0 2 100 20 40 60 80 100 Quantity
12 10 8 Price 6 4 D 2 0 20 40 60 80 100 Quantity• ALWAYS has a negative slope• It shows a negative relationship between priceand quantity• Therefore, the law of demand states that, all thingsequal, as price rises, quantity demanded falls, andas price falls, quantity demanded rises.
12 10 8 Price 6 D1 4 2 D D2 0 20 40 60 80 100 Quantity• Sometimes, the demand for a product will change, atALL prices• It may cause an increase in demand,• or a decrease in demand
Variables that cause a change in demand are called Determinants of DemandThey are: Income Prices of Related Goods Tastes Population (Number of Buyers) Expectations
Determinants of DemandIncomeThe number of items people are willing to buy isdetermined by how much money they have. Simply, themore money you have the more you can buy.If the demand for an item falls when income falls, thegood is called a normal goodIf the demand for an item rises when income falls, thegood is called an inferior good
Determinants of DemandPrices of Related GoodsA change in the price of one good can cause a change inthe demand for another, related goodSubstitutes• Items that may be used in place of each other• when a fall in the price of one good reduces thedemand for another good, or when a rise in the price ofone good increases the demand for another good
Determinants of DemandPrices of Related GoodsA change in the price of one good can cause a change inthe demand for another, related goodComplements• Items that are often used together• when a fall in the price of one good increases thedemand for another good, or when a rise in the price ofone good reduces the demand for another good
Determinants of DemandTastesWhat people want at any given momentUsually reflected in what is popular as opposed to whatis unpopular at the time
Determinants of DemandPopulation (Number of Buyers)Population of a given area (more or less buyers)An increase in population results in an increase in demandA decrease in population results in a decrease in demand
Determinants of DemandExpectationsThe ability to predict what will come will cause people toreact differently in the market
Quantity Demanded is a specific point on the curve orschedule. Quantity 12 12 Demanded at 10 Demand 10 $6 8 8 Price Price 6 6 4 4 2 2 0 0 20 40 60 80 100 20 40 60 80 100 Quantity Quantity Price Quantity Quantity Price Quantity 10 20 Demand Demanded at $6 6 60 8 40 6 60 It shows the quantity of an item that will be 4 80 purchased at a single given price 2 100
12 The Quantity Demanded 10 changed from 8 60 to 40 Price 6 4 2 0 20 40 60 80 100 Quantity• A change in the quantity demanded results in amove from one point to another• all things equal, this is caused by a change in theprice (not one of the determinants of demand)