Demand Analysis
Download as PPT, PDF1 like1,309 views
Demand refers to the quantity of a good or service consumers are willing and able to purchase at various prices. Demand is affected by the good's own price, prices of complements and substitutes, consumer income and tastes, and consumer expectations. The demand schedule shows the relationship between price and quantity demanded, with quantity demanded decreasing as price increases according to the law of demand. Individual demand schedules combine to form the market demand schedule. A demand curve graphs this relationship, sloping downward from left to right. Shifts in the curve represent changes in demand caused by changes in its determinants.
Demand Analysis
- 2. Demand 2/28/2014 The amount consumers desire to purchase at various prices Demand does not necessarily mean a consumer WILL buy, but refers to a good or service they WOULD LIKE to buy
- 3. Effective Demand Consumers must be willing to buy AND be capable of paying the price set by the supplier 2/28/2014
- 4. Law of Demand If Price rises – Quantity demanded falls P Q If Price falls – Quantity demanded rises P 2/28/2014 Q
- 5. Individual Demand Individual Demand Schedule Lists the different quantities of a good that an individual consumer is prepared to buy at each price 2/28/2014
- 6. Market Demand Market Demand Schedule Lists the different quantities of a good that all consumers in the market are prepared to buy at each price. It is derived by adding together all the individual demand schedules for the good 2/28/2014
- 7. Demand Schedule (Demand for The Wii Games monthly) (1) Price (3) David’s demand (4) Total market demand (# games) (per game) (2) Chris’s demand (# games) (# games) A 28 16 700 B 40 15 11 500 C 60 5 9 350 D 80 1 7 200 E 2/28/2014 20 100 0 6 100
- 8. Demand Curve At higher prices, consumers generally willing to purchase less than at lower prices Demand curve is said to have a negative slope - downward sloping from left to right 2/28/2014
- 9. Point 100 Price per game € 20 A Market Demand 700 games Price (per game) 80 60 40 Demand A 20 0 0 2/28/2014 100 200 300 400 500 Quantity (games) 600 700 800
- 10. Point 100 Price per game Market Demand A €20 700 games B €40 500 games Price ( per game) 80 60 B 40 A 20 0 0 2/28/2014 100 200 300 400 500 Quantity (games) 600 700 800
- 11. Point 100 Price per game Market Demand A Price ( per game) 700 games B €40 500 games C 80 €20 €60 350 games C 60 B 40 20 A 0 0 2/28/2014 100 200 300 400 500 Quantity (games) 600 700 800
- 12. Point 100 Price per game Market Demand A Price ( per game) 500 games €60 350 games D 60 €40 C D 700 games B 80 €20 €80 200 games C B 40 A 20 0 0 2/28/2014 100 200 300 400 500 Quantity (games) 600 700 800
- 13. Point E 100 Price per game Market Demand €40 500 games €60 350 games D €80 200 games E 60 700 games C D 80 €20 B Price ( per game) A €100 100 games C B 40 A 20 0 0 2/28/2014 100 200 300 400 500 Quantity (games) 600 700 800
- 14. An Increase in Demand Price P Dx 2/28/2014 Qx Q1 Quantity D1
- 15. A Decrease in demand Price P D1 2/28/2014 Qx Q1 Quantity Dx
- 16. Factors affecting the demand for a good The Demand Function Dx = f ( Px, Pc, Ps, Y, t, E) 2/28/2014
- 17. The Demand Function Dx = f ( Px, Pc, Ps, Y, t, E) Px = Goods which obey and do not obey the Demand Pc = Price of Complimentary Goods Ps = Cost of Substitute Goods Y = Income t = Tastes E = Consumers Expectation 2/28/2014 Law of
- 18. Demand for a good depends on its own price If price rises quantity falls If price falls quantity rises P2 P1 Q2 2/28/2014 Q1 Quantity Demanded
- 19. Demand for a good depends on its own price • Complimentary Goods Goods which are used jointly. The use of one involves the use of the other • Substitute Goods Goods which satisfy the same needs and thus can be considered as alternatives to each other 2/28/2014
- 20. Complimentary Goods D1 D2 An increase in price of a complementary good causes the demand for good X to fall 2/28/2014 D2 D1 An fall in price of a complementary good causes the demand for good X to rise
- 21. Substitute Goods (The Substitute Effect) D2 D1 An increase in price of a substitute good causes the demand for good X to rise 2/28/2014 D1 D2 An fall in price of a substitute good causes the demand for good X to fall
- 22. Demand for a good depends on level of income (The Income Effect) • Normal Goods A 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 demanded 2/28/2014
- 23. Normal Goods D2 D1 A rise in income causes the demand for a normal good to increase from D1 to D2 2/28/2014 D1 D2 An fall in income causes the demand for a normal good to fall from D1 to D2
- 24. Demand Depends on Taste If the movement in taste 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 is against the good, it causes a fall in demand, which shifts the demand curve to the left 2/28/2014
- 25. Movement in Taste D2 D1 A movement in taste in favour of a good causes demand to increase 2/28/2014 D1 D2 A movement in taste against a good causes demand to fall
- 26. Demand for a good depends on the expectations of consumers Demand for a good will shift to the right if consumers expect: 1. 2. 3. The price of good X to be higher in the future A scarcity of good X in the future Their incomes to be higher in the future Demand for a good will shift to the left if consumers expect: The price of good X to be lower in the future 2. A plentiful supply of good X in the future 3. 2/28/2014Their incomes will be lower in the future 1.
- 27. Consumer Expectations D2 D1 Demand for Good X will rise if consumers expect higher future price, scarcity or higher future incomes 2/28/2014 D1 D2 Demand for Good X will fall if consumers expect lower future price, abundance or lower future incomes