3 Demand


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3 Demand

  1. 1. Economic Principles: Demand Who’s Da Man? (Me.)
  2. 2. Who Wants This Watch? • Owned by me for 5 years. • Broken. $1,000.00
  3. 3. Who Wants This Watch? • Owned by Brad Pitt for 5 years. • Broken. $1,000.00
  4. 4. What is Demand? • In your own words, 1 minute, in your notes. 30 seconds left • The quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time.
  5. 5. Demand vs. “Want” I want this --> However, demand refers to being willing and able.
  6. 6. Let’s Talk About Hamburgers
  7. 7. At higher prices, people buy less of something than they do at lower prices.
  8. 8. Why? Price Effect 4 factors that explain price effect
  9. 9. Buying Power •If prices go down, you can buy more hamburgers with the same amount of money. •Opposite, if price goes up.
  10. 10. Diminishing Personal Value • If prices go down, you might eat hamburgers all the time instead of once a week. • For example, normally burgers are $5.00 so you only have it once a week, but if the price falls to $1.00 you will eat burgers for lunch everyday.
  11. 11. Diminishing Marginal Utility • How good does the first bite of that first burger taste? • How good does the last bite of your fifth burger taste? • The only way you’re going to eat five burgers is if the price is lower.
  12. 12. Substitutes • What might you have for lunch if burgers are too expensive? • Availability of substitutes keeps prices from getting too high. • What is a substitute for…?
  13. 13. Price Effect vs. Change in Demand • For demand to change, the entire demand curve must move. • What causes demand to increase or decrease?
  14. 14. Price Elasticity of Demand • Measurement of the price effect. • If the price changes, how much does the quantity demanded change? • Inelastic <-------------------->Elastic
  15. 15. • Two curves, one with a steeper slope than the other. • Same change in price, which one now has a higher quantity demanded? • So, which one is more elastic? A B $2.00 $1.00 600 700 500
  16. 16. Elastic Inelastic • Lots of substitutes • Few substitutes available • Small part of • Larger part of a budget person’s budget • Little or no time to • People have a long adjust to price time to adjust to a changes price change • Examples? • Examples?
  17. 17. Change in Income • If incomes rise, people have more money to spend. • Either buy greater quantities at the same price or willing to pay higher prices.
  18. 18. Prices or Availability of Substitutes • If the price of one item changes a shift in demand for a substitute occurs. • Example?
  19. 19. Prices or Availability of Complementary Goods • Goods that are used together • Examples? • How might the change in price of one complementary good affect another? • Price of one goes up, the demand for the other goes down.
  20. 20. Change in Weather or Season • Demand for some items changes based on the temperature or the weather. • Like what?
  21. 21. Change In the Number of Buyers • If the population of an area increases, then there is more demand.
  22. 22. Change in Styles, Tastes, Habits • What is the current demand for parachute pants?
  23. 23. Change in Expectations • What if there was a rumor that your favorite fast food restaurant might shut down? How would that affect your demand?
  24. 24. Practice • The price of maple syrup goes up due to a terrible maple tree virus. What might happen to the demand for pancake mix? • The demand for pancake mix will go down. Complementary goods
  25. 25. • I invent a new type of orange juice machine that can convert 100% of an orange into the most delicious orange juice anyone has ever tasted for much cheaper than traditional production. Therefore, the price of orange juice goes down. What happens to the demand for apple juice? • Demand for apple juice goes down. Substitutes
  26. 26. • Britney Spears, who everyone thinks is totally sweet, decides to start wearing raccoon fur hats all the time. How might this affect the demand for raccoon fur hats? • The demand will go up. Change in styles, tastes, habits.
  27. 27. • A new law is written that says all computers sold after January 31st, 2009 must be made by Apple. What might happen to the demand for PC’s prior to that date? • The demand for PC’s will go up Change in expectations
  28. 28. • A new multi-national company moves it’s headquarters into Bowling Green, OH. The company is bringing 10,000 people from out of town to live in BG. How might this affect the demand for pizza in BG? • Due to more people in the market, the demand will go up Change in number of buyers
  29. 29. • Microsoft decides to drop the price of the Xbox 360 to $100. How does this affect the demand? Think carefully about price affect vs. change in demand! • There is no change in demand. However, there is a change in the quantity demanded.