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- 1. MARKET DEMAND Rey Belen Afternoon School August 24, 2010
- 2. Buying Behavior Market Analysis Demand
- 3. <ul><li>Buying basics </li></ul><ul><li>Law of Demand </li></ul><ul><li>Demand Curve </li></ul><ul><li>Determinants </li></ul><ul><li>Scarcity </li></ul>
- 4. <ul><li>The willingness and ability to buy a range of quantities </li></ul><ul><li>of a good at a range of prices, during a given time. </li></ul>
- 5. <ul><li>Demand price is the maximum price that buyers would be willing and able to pay for a given quantity of a good. </li></ul><ul><li>The emphasis is on maximum. Buyers have an upper limit on the price that they would be willing and able to pay for a good. </li></ul><ul><li>Buyers are willing and able to pay a lower price. In fact, they would be glad to get it for free. </li></ul><ul><li>The maximum demand price is based on the fact of economic life that people prefer more to less. </li></ul>
- 6. <ul><li>Quantity demanded is the specific quantity of a good that buyers would be willing and able to buy at a specific price. </li></ul><ul><li>Price and quantity demanded are a pair of numbers that go together. </li></ul><ul><li>Quantity demanded is not the same as demand. </li></ul><ul><li>Demand is the entire range of prices and quantities (all pairs of numbers). </li></ul><ul><li>Quantity demanded is a specific quantity at a specific price (a quantity paired with a price). </li></ul><ul><li>Demand is the entire range of prices and quantities (all pairs of numbers). </li></ul><ul><li>Quantity demanded is a specific quantity at a specific price (a quantity paired with a price). </li></ul><ul><li>Demand is the entire range of prices and quantities (all pairs of numbers). </li></ul><ul><li>Quantity demanded is a specific quantity at a specific price (a quantity paired with a price </li></ul>
- 7. <ul><li>Demand is the range of prices and quantities that buyers are willing and able to buy at different prices. </li></ul><ul><li>Buyers must be both willing and able to buy a good to have a demand. Willingness is based on tastes and preferences. Ability is based on income. </li></ul><ul><li>Demand includes a range of prices and quantities, not just a specific quantity. </li></ul><ul><li>Demand is analyzed during a given time period. </li></ul><ul><li>Demand price as the maximum price that buyers would be willing and able to pay for a given quantity. </li></ul><ul><li>Quantity demanded as the maximum quantity buyers would be willing and able to buy at a specific price. </li></ul>
- 8. <ul><li>The law of demand is an inverse relationship between demand price and the quantity demanded, ceteris paribus. </li></ul><ul><li>Inverse relationship means that people buy more of a good if the price is lower and less if the price is higher. </li></ul><ul><li>In terms of scientific method, price causes quantity demanded. A change in the price causes a change in the quantity demanded. </li></ul>
- 9. <ul><li>Ceteris paribus means other things remain unchanged. </li></ul><ul><li>Law of demand applies exclusively to the relationship between demand price and quantity demanded. </li></ul><ul><li>All other things that can affect demand must remain constant to avoid distorting this relationship. </li></ul><ul><li>Because demand is affected by many factors other than price, a buyer may buy larger amounts of a good even with a higher price. </li></ul><ul><li>Other factors that affect demand are called demand determinants. </li></ul>
- 10. <ul><li>Income Effect </li></ul><ul><ul><li>This is the change in quantity demanded because a change in price gives a buyer more real income, even though money income remains unchanged. </li></ul></ul><ul><li>Substitution Effect </li></ul><ul><ul><li>The substitution effect exists because a change in the price of a good makes this price relatively higher or lower than the prices of other goods. </li></ul></ul><ul><ul><li>The higher the price of a good, then the more expensive it is relative to other goods. The lower the price of a good, then the less expensive it is relative to other goods. </li></ul></ul><ul><ul><li>Other prices remain unchanged. </li></ul></ul><ul><ul><li>The substitution effect is usually more important than the income effect. </li></ul></ul>
- 11. <ul><li>The law of demand, which is a fundamental economic principle stating that demand price and quantity demanded are inversely related, ceteris paribus. </li></ul><ul><li>Ceteris paribus, a Latin term meaning that other things remain unchanged. It is used to control for factors other than price, that affect demand. </li></ul><ul><li>Why the law of demand works because of the income and substitution effects. </li></ul><ul><li>The income effect, which exists because price changes affect the purchasing power of buyers' given incomes. </li></ul><ul><li>The substitution effect, which exists because price changes make other goods relatively more or less expensive. </li></ul>
- 12. <ul><li>It is table presenting the relationship between demand price and quantity demanded. </li></ul><ul><li>Assumptions: </li></ul><ul><ul><li>Ceteris paribus factors do not change. </li></ul></ul><ul><ul><li>Data is for a specific time period </li></ul></ul>
- 13. <ul><li>First, higher prices go with lower quantities demanded-the law of demand. </li></ul><ul><li>Second, the prices and quantities are maximum values. </li></ul><ul><li>Third, demand is the whole set of price/quantity pair numbers. Quantity demanded is any single number at the specified price. </li></ul><ul><li>By the way, these numbers are hypothetical. </li></ul>
- 14. <ul><li>A demand schedule can be use to plot a demand curve </li></ul><ul><li>A demand curve has negative slope. </li></ul><ul><li>Higher prices correspond with smaller quantities. </li></ul><ul><li>The demand curve embodies the law of demand. </li></ul>
- 15. <ul><li>The area beneath the demand curve is the demand space. </li></ul><ul><li>The curve represents the maximum price that buyers would be willing to pay. </li></ul><ul><li>Buyers would be willing to pay less than the demand price on the demand curve, but not more. </li></ul>
- 16. <ul><li>Demand schedule, which is a table of price/quantity numbers, can be used to illustrate demand and the law of demand. </li></ul><ul><li>Demand curve can be derived from a demand schedule by plotting the price/quantity pairs, and how the negative slope of this demand curve also reflects the law of demand. </li></ul><ul><li>Demand space is the area beneath a demand curve and that the demand price on the demand curve is the upper limit of buyers' demand space. </li></ul><ul><li>Ceteris paribus is the notion that other things remain constant. We make this assumption because things other than price affect demand. </li></ul>

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