Trudie Murray Demand

Trudie Murray Place a value of each tokenBlack = 50 centRed = 20 centDemand and Supply Game

Trudie Murray Price rises when quantity supplied is scarce and demand increasesPrice decreases when quantity supplied increases and as a resultdemand increases

Trudie Murray DemandThe amount consumers desire to purchase at various prices at any given time

Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy

Trudie Murray Effective Demand

Consumers must be willing to buy AND be capable of paying the price set by the supplier

Trudie Murray Law of DemandIf Price rises Quantity demanded fallsP Q

If Price falls Quantity demanded rises

P Q

Trudie Murray Individual Demand

Individual Demand Schedule

Lists the different quantities of a good that anindividual consumer is prepared to buy at eachprice

Trudie Murray Market Demand

Market Demand Schedule

Lists the different quantities of a good that allconsumers in the market are prepared to buyat each price. It is derived by adding togetherall the individual demand schedules for thegood

Trudie Murray Demand Schedule(Demand for coffee monthly)

(1)

(2)

(3)

(4)

Price (cent per g)

Chriss demand (g)

Davids demand (g)

Total market demand (kgs: 000s)

A

20

28

16

700

B

40

15

11

500

C

60

5

9

350

D

80

1

7

200

E

100

0

6

100

Trudie Murray Demand Curve

At higher prices, consumers are generally willing to purchase less than at lower prices

Demand curve is said to have a negative slope - downward sloping from left to right

Trudie Murray ADemandPoint Price per g Market Demand

A 20 cent 700 kilogrammesPrice (cent per g)

Quantity (kilogrammes: 000s)

Trudie Murray Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammesABQuantity (kilogrammes: 000s)Price (cent per g)

Trudie Murray Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammesABCQuantity (kilogrammes: 000s)Price (cent per g)

Trudie Murray Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammes D 80 cent 200 kilogrammesABCDQuantity (kilogrammes: 000s)Price (cent per g)

Trudie Murray Point Price per g Market Demand A 20 cent 700 kilogrammes B 40 cent 500 kilogrammes C 60 cent 350 kilogrammes D 80 cent 200 kilogrammes E 100 cent 100 kilogrammesABCDQuantity (kilogrammes: 000s)Price (cent per g)

E

Trudie Murray PricePQ1Q2QuantityAn Increase in Demand

Trudie Murray PricePQ2Q1QuantityA Decrease in Demand

Trudie Murray Factors affecting the demand for a good

The Demand Function

Dx = f ( Px, Pog, Y, T, E, G, U)

Trudie Murray The Demand Function Dx = f ( Px, Pog, Y, T, E, G, U)

Px = Goods which obey and do not obey the Law of DemandPog = Price of Complimentary Goods and Cost of Substitute GoodsY = Income of consumerT = Consumer tastes and preferencesE = Consumers expectations regarding future pricesG = Government regulationsU = Unplanned factors

Trudie Murray

Demand for a good depends on its own price

If price rises quantity demanded falls If price falls quantity demanded rises P 2P 1Q 2Q 1Quantity Demanded

Trudie Murray Demand for a good depends on the price of other goods

Complimentary GoodsGoods which are used jointly. The use of one involves the use of the other - E.g. bread and butter, cars and petrol

Substitute Goods Goods which satisfy the same needs and thus can be considered as alternatives to each other E.g. Coke and Pepsi or Tea and Coffee

Trudie Murray Complimentary GoodsD 1D 2D 2D 1An increase in price of a complementary good causes the demand for good X to fallAn fall in price of a complementary good causes the demand for good X to rise

Trudie Murray Substitute Goods (The Substitute Effect)D 2D 1D 1D 2An increase in price of a substitute good causes the demand for good X to riseAn fall in price of a substitute good causes the demand for good X to fall

Trudie Murray Demand for a good depends on level of income (The Income Effect)Normal GoodsA normal good is a good with a positive income effect. A rise in income causes more of it to be demanded, while a fall in income causes less of it to be demandedInferior GoodsAn inferior good is a good with a negative income effect. A rise in income causes less of it to be demanded, while a fall in income causes more of it to be demanded

Trudie Murray Normal GoodsD 2D 1D 1D 2A rise in income causes the demand for a normal good to increase from D1 to D2An fall in income causes the demand for a normal good to fall from D1 to D2

Trudie Murray Inferior GoodsD 1D 2D 2D 1An increase in income causes the demand for an inferior good to fall from D1 to D2A decrease in income causes the demand for an inferior good to rise from D1 to D2

Trudie Murray Demand depends on Consumer TastesIf the movement in taste or preferences is in favour of the good it causes an increase in demand which shifts the demand curve to the right

If the movement in taste or preferences is against the good it causes a fall in demand which shifts the demand curve to the left

Trudie Murray Movement in TasteD 2D 1D 1D 2A movement in taste in favour of a good causes demand to increaseA movement in taste against a good causes demand to fall

Trudie Murray Demand for a good depends on the expectations of consumersDemand for a good will shift to the right if consumers expect: The price of good X to be higher in the future e.g. propertyA scarcity of good X in the future e.g. oilTheir incomes to be higher in the future e.g. promotion

Demand for a good will shift to the left if consumers expect: The price of good X to be lower in the future A plentiful supply of good X in the future Their incomes will be lower in the future

Trudie Murray Consumer ExpectationsD 2D 1D 1D 2Demand for Good X will rise if consumers expect higher future prices, scarcity or higher future incomesDemand for Good X will fall if consumers expect lower future prices, abundance or lower future incomes

Demand for a good depends on government regulations

If the government implement a programme which reduces consumption of a particular product than demand for this good will be affected

E.g. The smoking ban / educational campaign to reduce alcohol consumption.Trudie Murray

Government RegulationsTrudie Murray D 2D 1If the government implement a policy to restrict consumption demand for Good X will fallExample: The Smoking Ban

Demand for a good depends on unplanned factorsIf there is a sudden heat wave an unplanned factor this may result in an increase in demand for sunscreen and a decrease in the demand of home oil

If flash floods occur across the country an unplanned factor this may result in an increase in the demand for Wellingtons. Trudie Murray

Unplanned FactorsTrudie Murray D 1D 2Factors such as weather can effect the demand for goods e.g. a sudden heat wave would increase the demand for sunscreen

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