Factors Affecting Demand
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Transcript of Factors Affecting Demand
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Factors Affecting Demand
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The Law of Demand
• When the price of something goes up, the demand for it will go down
• When the price of something goes down, the demand for it will go up
Price goes Demand goes
Price goes Demand goes
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• If prices were to stay the same, what then could
change demand?
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1) Consumer Income
• If consumer income increases, demand will increase (having more money means people will spend more money)
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Consumer Income… continued
• Consumer income can increase in two ways:
• 1) Wages increase
• 2) Prices for goods & services decrease
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2)Consumer Tastes
• Consumer tastes are shaped by the way products are marketed (advertised) to them
• If an advertising campaign is particularly successful, people tend to buy more of a product, this often means companies can charge a little more for their product. (think designer clothing & luxury cars)
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Consumer taste• Consumer tastes
may also be shaped by new trends.
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3) Substitutes
• The demand for a product tends to decrease if the price of its substitute decreases
• What are some substitute products?
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Substitutes
• If the price of butter goes up, then the demand for margarine will go up.
• If the price of sugar goes up, then the demand for Splenda© will go up
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4) Compliments
• Compliments are goods that are related. You need to have both in order to use them
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Compliments
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Compliments
• If the price of DVD players goes down, then the demand for DVD’s goes up
• If the price of Gillette razor handles goes up, then the demand for the razor blades goes down
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4) Change in Expectations
• The way people feel about the future of a product.
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Expectations• If GM
announces they will release a new sporty, cheap electric car in December 2009, then the demand for gas powered cars will decrease.
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Expectations
• If the FDA were to announce a Mad Cow disease warning in America, then the demand for chicken & pork would increase
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Homework
• Read pages 95-99
• Answer questions 1-4 on page 99
• Don’t whine, you didn’t even have to take notes today.