Demand 1. Demand analysis - intuition Marginal Cost/Marginal Benefit analysis of consumers If...

download Demand 1. Demand analysis - intuition Marginal Cost/Marginal Benefit analysis of consumers If Marginal Benefit > Marginal Cost, buy it If Marginal Benefit.

of 18

  • date post

    18-Jan-2016
  • Category

    Documents

  • view

    218
  • download

    0

Embed Size (px)

Transcript of Demand 1. Demand analysis - intuition Marginal Cost/Marginal Benefit analysis of consumers If...

  • Demand*

  • Demand analysis - intuitionMarginal Cost/Marginal Benefit analysis of consumersIf Marginal Benefit > Marginal Cost, buy itIf Marginal Benefit < Marginal Cost, dont buy it

    Marginal Benefit is reflected by what consumer is willing to pay. Marginal Cost is price of item.

    *

  • Demand for Adam Humphreys Visa Service (based on individuals willingness to pay)Depends on,Price of Service Individuals IncomePrice Associated with Doing it at Burger KingHow much does the person really want to go to China or how big a hassle is it to come back.Number of Individuals going to Chinese Consulate for visa.

  • Demand for Adam Humphreys Visa Service

  • Market Demand for Adam Humphreys Visa ServiceObtained by summing all individual demands.

    Depends on,All factors that affect individuals demands (price of service, income, price of related goods, tastes/preferences, expectation of future prices, etc.) Number of Individuals (population)

  • Individuals Can Demand Multiple Units

  • Example of Change in Demand due to Increase in IncomeNormal Good At every price people buy more so demand increases -shifts to right.

    Examples:Adam Humphreys Servicei phonesLego RoboticsShrimpYachtsRed Haven Restaurant

    *D1

  • Example of Change in Demand due to Increase in IncomeInferior Good At every price people buy less so demand decreases -shifts to left.

    Examples:Generic DiapersBolognaCanned BeansFord FiestaBus tickets

    *D1

  • Change in demand due to change in the price of a related goodSubstitutes Two goods that satisfy similar needs or desiresExamples: Adam Humphreys Service and Burger Kings Internet CafChicken Breasts and Chicken WingsDiet Coke and Diet Pepsi

    *

  • Change in demand due to change in the price of a SubstitutePrice of a substitute good INCREASES -Demand IncreasesShifts Right

    Example:Price of Diet Pepsi increases, Demand for Diet Coke increases

    D1D0*

  • Change in demand due to change in the price of a SubstitutePrice of a substitute good DECREASES -Demand DecreasesShifts Left

    Example:Price of Diet Pepsi decreases, Demand for Diet Coke decreases

    D1D0*

  • Change in demand due to change in the price of a SubstitutePrice of a substitute good INCREASES -Demand IncreasesShifts Right

    Example:Price of Diet Pepsi increases, Demand for Diet Coke increases

    D1D0*

  • Change in demand due to change in the price of a related good:Complements Two goods that are used jointly in consumption.

    Examples: Adam Humphreys Service and Airfare to ChinaHardware and SoftwareGasoline and GMC Yukons*

  • Change in demand due to change in the price of a ComplementPrice of a complementary good INCREASES -Demand DecreasesShifts Left

    Example:Price of Hardware increases, Demand for Software decreases

    D1D0*

  • Change in demand due to change in the price of a ComplementPrice of a complementary good DECREASES -Demand IncreasesShifts Left

    Example:Price of Hardware decreases, Demand for Software increases

    D1D0*

  • Demand = Willingness to PayP=35Consumer Surplus(The value consumers get from a good but do not have to pay for.)

  • What does the demand curve look like?Which demand below is for the more price sensitive product?

    How price sensitive are consumers to:SaltCigarettesGasolineDiet Cokei PhonesChipotle on Grand River

    *PPQD1QD2

  • What determines price sensitivity/ price elasticity?Number of substitutesThe more substitutes or the closer the substitutes, themore elasticTime intervalThe longer time interval themore elasticShare of budgetThe larger share of the budget the more elasticEx. Diet CokeEx. GasolineEx. Salt*

    *******