A Lesson on Demand

What is Demand?Willing and able to purchase a product at a

particular price How many of you would like a Porsche [or like

vehicle]? How many of you are able? What’s the difference between willing and able? Idea of time and place – at this time, you may be

willing to buy a Porsche, but are not able, therefore you do not have a “DEMAND” for a Porsche

Demand ScheduleA table that lists at various prices, the

number of items demanded

Demand Curve – the graphic representation of demand

Graphing a Demand Schedule:

1. The lower left quadrant is “0”

2. The vertical axis is price

3. The horizontal axis is quantity

Graph the numbers from the Lollipop Demand Schedule

Example: Demand for Lollipops

Totals

10

20

30

40

50

Law of DemandAs price falls, the quantity demanded

increases. As the price rises, the quantity demanded decreases

P QDPrice per pound of coffee beans

Quantity of Coffee Beans Demanded (billions of pounds)

$2.00 7.1

1.75 7.5

1.50 8.1

1.25 8.9

1.00 10

Demand Curve for Coffee Beans

Change in Quantity Demanded vs. Change in Demand

Change in Quantity Demanded: Caused by change in own price of good Movement along the curve

Change in Demand: Caused by Change in determinant of

demand Shift to new demand curve

Demand Determinants Income

Normal Good: a good for which demand increases as consumer incomes rise (milk)

Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides)

As income rises consumers tend to switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

Determinant - Income

Determinants con’tPreference/Taste

Likes and dislikes in consumptionConsumer Expectations

Change in future price of goods Change in future income

Population Change As the number of consumers in a market

changes the demand will change

Determinants con’tConsumer Expectations

Change in future price of goods Change in future income

Determinants con’tPopulation Change

As the number of consumers in a market changes the demand will change

Determinants con’tPrices of Related Goods

Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] (Pepsi and Coke)

Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries)

Determinants con’tRelated Goods

Compliments Substitutes