2. Price and Demand
• Business Supply Products
• Consumers Demand Products
• The interaction of supply and demand can
determine the price of a product.
3. Demand Schedule
100
Price and demand are inverse as
price goes up quantity demanded
goes down, as price goes down
quantity demanded goes up
p1
Price
50
p2
demand
q1
0
q2
50
Quantity Demanded
100
4. Prestige Demand
Schedule
Prestige products are products
perceive an association between
high price and higher quality.
100
p3
p2
Price
50
p1
demand
0
q1
q3
q2
50
Quantity Demanded
100
5. Increase and decrease in
Demand Curve
100
Besides price, other factors can
cause a shift in the demand curve
p1
Price
50
p2
demand
q1
0
q2
50
Quantity Demanded
100
6. Factors influencing shift
in demand
•
•
•
•
•
•
•
Consumers experience change in income
Price of rivals goods may change
Price of complementary product many fall.
Changes in taste and fashion
Marketing campaigns
Changes in population
Government legislation & regulation
7. How businesses use demand curves
• Useful tool to help business:
o Calculate revenue to be earned for any given price change
o Predict the likely reaction of consumers to price change
o Predict the likely impact upon revenue of price change
9. Price Elasticity of demand
• Want to know what will happen to demand for their
product if their price changes
Price
Percentage change in quantity demanded
Elasticity of
Percentage change in price
Demand
OR
Change in quantity demanded
Divided
Original quantity demanded
by
Change in price
Original price
10. • ELASTICITY—sensitivity of the demand for a product
to price change
Elastic demand--% change in Q > % change in P
Inelastic demand--% change Q<% change in P
11. Factors affecting price
elasticity
• Number of substitutes for a product
o More substitutes = highly sensitive to price changes
o Relatively price elastic
• Time – the longer the period of time the more price
elastic the demand for a product is likely to be.
