I can explain the law of demand and analyze changes in demand in response to determinants.

Transcription

1 I can explain the law of demand and analyze changes in demand in response to determinants. Success Criteria: Identify determinants of demand and accurately graph changes in demand.

2 Determinants of Demand

3 What other factors besides price might determine whether you are willing and able to purchase a particular good or service?

4 Recap: Change in Demand vs. Change in Quantity Demanded

5 Determinants of Demand Income Price of Substitute Goods Price of Complementary Goods Consumer Population Taste/ Preferences Consumer Price Expectations

6 Review: Change in Quantity Demanded Price D1 Quantity

7 On to Determinants of Demand CHANGE IN DEMAND: consumers demand different amounts at every price, causing the demand curve to shift to the left or the right.

8 Changes in income DETERMINANTS OF DEMAND Changes in the prices of related goods Substitutes: goods that can replace one another Compliments: goods that are consumed together Changes in the size or composition of the population Change in price expectations Changes in tastes/preferences

9 Practice Problem #1 What would happen to the demand of pizza if you find out pizza causes heart disease? Determinant? Increase or decrease in demand?

10 Answer to Practice Problem #1 What would happen to the demand of pizza if you find out pizza causes heart disease? Determinant - A change in consumer tastes/preferences; consumer expectations Decrease in demand

11 Practice Problem #2 What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities? Determinant? Increase or decrease in demand?

12 Answer to Practice Problem #2 What would happen to the demand of Nike shoes if it is the favorite shoe of many sports celebrities? Determinant A change in consumer tastes/preferences Increase in demand

13 Practice Problem #3 A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). Determinant? Increase or decrease in demand of Red Bull?

14 Answer to Practice Problem #3 A new energy drink comes to market that does not have negative side effects (e.g., jitters, crashes). Determinant A related good (substitute) Decrease in demand of Red Bull

15 Practice Problem # 4 Student allowances and the minimum wage for work increases. Determinant? Increase or decrease in demand of video games?

16 Practice Problem # 4 Student allowances and the minimum wage for work increases. Determinant Income increase Increase in demand of video games

17 Movement Along a Demand Curve Versus a Shift of the Curve Remember there is a difference between quantity demanded and demand. Markets never stand still, there are always outside factors that change the actual price of the good or how much is demanded altogether. A change in price creates a change in the quantity demanded, other things constant. This causes a movement along the demand curve. A change in one of the determinants of demand causes a change in demand. This causes in a shift of a demand curve. Or a new curve.

18 What determinants would increase the market demand for pizza?

19 Determinants Increasing Demand Increases in income Increases in population Increase in prices of substitute goods Decrease in price of complement goods Consumer expectation that prices will increase in the future Improvement in taste Increased consumer preferences

20 Determinants of increased demand change the story.. How so? Quantity demanded of pizza per week (by millions) Original Story Price of pizza 9 $ $ $ $ $ $0.00 Quantity demanded of pizza per week (by millions) New Story Price of pizza 15 $ $ $ $ $ $0.00

21 How would determinants of increased demand change the picture of demand? $15 Price per pizza b D Millions of pizzas per week

22 Increased Market Demand for Pizza $15 12 b f Price per pizza D Millions of pizzas per week D2

23 What determinants would decrease the market demand for pizza?

24 Determinants Decreasing Demand Decreases in income Decreases in population Decrease in prices of substitute goods Increase in price of complement goods Consumer expectation that prices will decrease in the future Deterioration of taste Decreased consumer preferences

25 Determinants of decreased demand change the story.. How so? Quantity demanded of pizza per week (by millions) Original Story Price of pizza 9 $ $ $ $ $ $0.00 New Story Quantity demanded of pizza per week (by millions) Price of pizza 5 $ $ $ $ $ $0.00

26 How would determinants of decreased demand change the picture of demand? Price per pizza $ b D Millions of pizzas per week

27 Decreased Market Demand for Pizza $15 12 j b Price per pizza D2 D Millions of pizzas per week

28 Demand Elasticity: responsiveness of quantity demanded to a change in price Elastic: change in price causes a relatively large change in quantity demanded (more than proportional)

29 Inelastic: change in price causes a relatively smaller change in quantity demanded (less than proportional)

30 Diminishing Marginal Utility Marginal utility: satisfaction or usefulness from acquiring one more unit of a product Consumers keep on buying a product until they reach a point where the last unit consumed gives enough satisfaction to justify the price Diminishing marginal utility: decreasing satisfaction or usefulness as additional units of a product are acquired.

31 I can explain the law of demand and analyze changes in demand in response to determinants. Success Criteria: Identify determinants of demand and accurately graph changes in demand.