consumers and demand. the law of demand demand: the desire to own something and the ability to pay...

Consumers and Demand

The Law of Demand

Demand: The desire to own something and the ability to pay for it.

The Law of Demand: Consumers buy more of a good or service when its price decreases and less when its price increases.

It’s all about getting the most for your buck (e.g. the auction market)

The Demand SchedulePrice Quantity Demanded

10 09 18 17 36 45 44 53 52 51 5

The Demand Curve

Demand Curve

$0$5

$10$15

1 2 3 4 5 6 7 8 9 10

Quanitity Demanded

Pric

e

Shifts in Demand What causes a shift?

Income Normal Goods (Income

increases → Demand increases)

Inferior Goods (Income increases → Demand decreases)

Consumer Expectations (e.g. sales)

Population (e.g. baby boomers)

Consumer Tastes and Advertising

Consumer Tastes and Advertising

Food Fashion Entertainment Personal Health Toys Clothing

Shifts in Demand (Cont’d)

As consumers earn more money, they are able to spend more.

Income effect: The change in consumption resulting from a change in income.

Shifts in Demand (Cont’d) Goods used in place of

one another (substitute products – e.g. sugar and Splenda).

Two goods that are brought and used together (complementary products – e.g. hot dogs and buns).

Elasticity of Demand

The degree to which changes in price cause changes in quantity demanded (Elastic vs. Inelastic).

Two Reasons for Elasticity of Demand:The relationship between income and cost of

the product (Car vs. Salt)Whether or not a substitute is available

(Butter vs. Margarine)