Deamand Analysis Presentation

Demand, Supply & Market
Equilibrium
P
D
Q
Demand
A relation between the price of a good and the

quantity that consumers are willing and able
to buy during a given period, other things
constant.
Willing: you want to buy the product

Able: you can afford the buy the product
Demand Schedule and Curve
Demand curve:
a curve showing the

relation between the
price of a good and
quantity demanded
during a given period,
other things constant.
Suppose we are making
pizza.
Price of Quantity
Good
Demand
ed
$3
$4
$5
$6
200
150
100
75
$7
50
Law of Demand
States that a quantity of a good demanded

during a given period relates inversely to its
price, other things constant.
Price increases Quantity Demanded
decreases
Price decreases Quantity demanded
increases
Creates a downward sloping demand curve
Demand Curve
A curve showing the relation between
the price of a good and the quantity
demanded.
Price
$6
$5
Point on the line that matches the schedule

Every point on the line matches the schedule.
It is a price/quantity demanded that consumers
are willing and able to buy.
$4
$3
0
50
75
100 150
Demand
Quantity
200
Chief Characteristics of law of

Demand
Inverse relationship
Other factors remain constant
Movement Along the Demand Curve
Caused by a change in price
Only a change in price
Move from one point to another on the same

graph
Called a
Change in quantity demanded.
Movement along the Demand Curve

Price
$6
$5
Demand
0
75
100
Quantity
Why?
Substitution Effect
Unlimited wants/scarce resources

When the price of a good falls, consumers
substitute that good for other goods, which
become relatively more expensive.
Reverse also holds true
Why?
Income Effect
Money income: is simply the number of dollars

received per period
Real income: your income measured in terms of
what it can buy.
A fall in the price of a good increases consumers
real income making consumers more able to
purchase goods; for a normal good, the quantity
demanded increases.
Exceptions
Veblen Goods/ Snob appeal

Speculative market
The Giffen case
Demand
Individual demand
The demand of an individual consumer
Market demand
Sum of individual demands of all consumers in

the market
Shifts in the Demand Curve
A demand curve isolates the relation between

prices of a good and quantities demanded
when other factors that could affect demand
remain unchanged.
Factors called assumptions or determinants
Determinants of Demand
Changes in consumer income

Changes in prices of related goods
Changes in consumer expectations
Changes in the number or composition of
consumers
Changes in consumer tastes
Changes in determinants
Results in changes to the RELATIONSHIP

BETWEEN PRICE AND QUANTITY
DEMANDED.
At each and every price a DIFFERENT
quantity is demanded.
Results in a shift in the demand curve
New curve must be drawn
Changes in Demand
Increase in demand
At each and every price

MORE of the good is
Price
demanded
Shifts to the right
Qd1 Qd2
$4 150
$5
B
D2
200
$5 100
150
$6 75
100
D1
100
150
Quantity
Causes of Increase in Demand
Increase in consumer
income
Causes consumers to
buy more of the
product at each and
every price.
Normal goods
Inferior goods
Change in consumer income
Normal goods
A good for which demand

increases as consumer
income rise
Inferior goods
A good which demand

increases as consumer
income falls
Changes in Price of Related Goods
Substitutes
Goods that are not

consumed jointly
Goods that are related in
such a way that an increase
in the price of one shifts the
demand curve for the other
rightward.
Increase in price of Coke
leads to increase in
demand for Pepsi
Substitutes
Suppose that the price of Coke rises from $1 to

$1.50, then the demand for Pepsi will decrease
from 75 to 100.
$1
D2
D1
75
100
Changes in the price of related goods
Complements
Goods that are

related in a such a
way that an increase
in the price of one
shifts the demand of
the other leftward
Two goods that are
consumed jointly.
An decrease in the
price of one will
increase demand
for the other
Complements
An decrease in the
price of DVD
players, increases the
demand for DVDs
Suppose that DVD
players decrease in
price from $145 to
$100, now the
demand for DVDs
will decrease from
750 at $20 to 900.
$20
D2
D
750
900
Changes in Consumer Expectations
Such as expectations in
Prices and income

Affect how consumers
spend their money and
their demand
If product cheaper
today than tomorrow,
then increase in demand
Consumer preferences
likes and dislikes in
consumption assumed to
be constant along a given
demand curve assumed
constant along a given
demand curve
Changes in taste will
cause a shift in the
demand curve as different
quantities are demanded
at each and every price.
Changes in taste
Consumers
prefer platform
shoes.
At $50, demand
increases from
100 to 200.
$50
D
100
200
D2
Change in the number and composition

of consumers
The market demand curve is the sum of the

individual demand curves.
If the number of consumers falls then the sum
will be smaller thus shifting the demand curve
Changes in Demand
Decrease in demand
At each and every price

Less of the good is
Price
demanded
Shifts to the Left
Qd1 Qd2
$4 150
$5
D1
110
$5 100
90
$6 75
60
D2
90
100
Quantity
Causes of Decrease in Demand
Decrease in consumer
income
Causes consumers to
buy less of the product
Substitutes
Goods that are not

consumed jointly
Goods that are related in
such a way that an increase
in the price of one shifts the
demand curve for the other
rightward.
Decrease in price of Coke
leads to Decrease in
demand for Pepsi
Substitutes
Suppose that the price of Coke drops from $1 to

$0.50, then the demand for Pepsi will decrease
from 100 to 75.
$1
D2
75
100
Changes in the price of related goods
Complements
Goods that are

related in a such a
way that an increase
in the price of one
shifts the demand of
the other leftward
Two goods that are
consumed jointly.
An increase in the
price of one will
decrease demand
for the other
Complements
An decrease in the
price of DVD
players, increases the
demand for DVDs
Suppose that DVD
players increase in
price from $100 to
$145, now the
demand for DVDs
will decrease from
900 at $20 to 750.
$20
D1
D2
750
900
Changes in Consumer Expectations
Such as expectations in
Prices and income

Affect how consumers
spend their money and
their demand
If product more
expensive today than
tomorrow, then
decrease in demand
Consumer preferences
likes and dislikes in
consumption assumed to
be constant along a given
demand curve assumed
constant along a given
demand curve
Changes in taste will
cause a shift in the
demand curve as different
quantities are demanded
Change in the number and composition

of consumers
The market demand curve is the sum of the

individual demand curves.
If the number of consumers falls then the sum
will be smaller thus shifting the demand curve
Review of Demand
A change in quantity demanded is not a change in

demand
Change in quantity demanded is caused by a change
in price
Change in quantity demanded is a movement along
the demand curve
Change is demand is caused by a change in the
determinants
Change in demand shifts the demand curve

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Demand, Supply & Market

A relation between the price of a good and the

Willing: you want to buy the product

Demand Schedule and Curve

a curve showing the

States that a quantity of a good demanded

Point on the line that matches the schedule

Chief Characteristics of law of

Movement Along the Demand Curve

Caused by a change in price

Only a change in price

Move from one point to another on the same

Change in quantity demanded.

Movement along the Demand Curve

Unlimited wants/scarce resources

Money income: is simply the number of dollars

Veblen Goods/ Snob appeal

The demand of an individual consumer

Sum of individual demands of all consumers in

Shifts in the Demand Curve

A demand curve isolates the relation between

Changes in consumer income

Results in changes to the RELATIONSHIP

New curve must be drawn

At each and every price

Causes of Increase in Demand

Change in consumer income

A good for which demand

A good which demand

Changes in Price of Related Goods

Goods that are not

Changes in Price of Related Goods

Suppose that the price of Coke rises from $1 to

Changes in the price of related goods

Goods that are

Changes in Price of Related Goods

Changes in Consumer Expectations

Prices and income

Changes in consumer tastes

Change in the number and composition

The market demand curve is the sum of the

At each and every price

Causes of Decrease in Demand

Changes in Price of Related Goods

Goods that are not

Changes in Price of Related Goods

Suppose that the price of Coke drops from $1 to

Changes in the price of related goods

Goods that are

Changes in Price of Related Goods

Changes in Consumer Expectations

Prices and income

Changes in consumer tastes

Change in the number and composition

The market demand curve is the sum of the

A change in quantity demanded is not a change in

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