Demand Notes

OBJECTIVES:

-Describe the influences that affect the demand for goods/services.
-Draw a demand curve for an individual consumer from given data.
-Explain that market demand is the sum of individual demand schedules.
-Draw a market demand curve.
-Explain and illustrate a movement along a demand curve.
-Identify the causes and evaluate the implications of a shift in the market demand
curve.
-Explain and illustrate how consumers will react to changes other than price. -Examine aggregate patterns of household spending to identify the relationships
between household income and consumption patterns.

Consumer demand

Demand is what a consumer is both willing and able to buy at a given price

A demand schedule

Sets down the quantity demanded at each price.
From this can be drawn onto a demand curve.

DEMAND SCHEDULE FOR AMY'S DEMAND
FOR CHOCOLATE

P($)	QD
1.00 1.20 1.40 1.60 2.00	10 8 6 4 2

A demand schedule must always have the following

Title (Demand Schedule for........)
Price in the left column.
Quantity demanded in the right column.
Price going from lowest to highest.

As we can see from the demand schedule as the price increases the quantity demanded decreases. This gives us the LAW OF DEMAND as price increases the quantity demanded decreases, ceteris paribus.

Price and quantity demanded are the only variables shown in a demand schedule.
Ceteris paribus means all other influences on demand remain unchanged.

What is consumer demand?
How much does Amy demand at a price of $1.40?

From a demand schedule we can draw a demand curve as shown below.

THINGS TO REMEMBER
When making a table remember the acronym T.A.L.L.

T = title.
A = axis (evenly scaled).
L = Line accurately drawn (through all the points and not over the plotted points).
L = Label (all lines and axis are labeled correctly.)

What is the Law of Demand?

Scott enjoys collecting Poke'mon cards. He decides at $8 per card he would only buy one. At $6 he would stay buy 2 at $5 per card, 3 cards; at $4 per card, 4 cards; at $3 per card; 5 cards.. Draw up a demand schedule then draw a demand curve. Remember to include a title and labels for the price (P) and quantity (Q) axes and for the demand curve (D).

Market demand

Market demand is the horizontal summation of each individuals demand at each price.

Market Demand Schedule For Poke'mon Cards

Price -($per card)	Amy's QD	Scott's QD	Sean's QD	Market QD
3	4	5	8	17
4	3	4	7	14
5	2	3	6	11
6	1	2	5	8
8	0	1	4	5

Draw up a market demand schedule for Magnum Iceblocks at the following prices: $5, $4, $3, $2, $1. At these prices Grace will buy 1, 2, 6, 8, 10; Dean will buy, 0, 1, 3, 4, 5; and Zac will buy 2, 3, 4, 5, 6. Then draw a market demand curve for Magnum Iceblocks. Remember to include a title and labels for the price and quantity axes and curve.

Movement along the demand curve

Change in quantity demanded.

A change in price will cause a change in the quantity demanded and a movement along the demand curve.

Example:

A change in price of Magnums from $4 to $1 has increased the quantity demanded from 6 to 21.

Note:

The Old Price and the New Price are clealry labeled with a P and a P'.
There are lines going from the axis to the demand curve.
The change in quantity demanded is clearly labeled.

- If price for the ice blocks falls from $4 to $1 then quantity demanded increases from 6 ice blocks to 21 ice blocks..

- The reverse happens if price rises then quantity demanded decreases.

In the above graph for Magnum Iceblocks what would be the new quantity bought if price rose from $2 to $5?

A Movement along the curve is caused only by a change in price resulting in a new quantity demanded, assuming ceteris paribus.

Demand curve shifts

Change in demand.

A change in any other factor (not price) will cause a shift of the demand curve (a whole new demand curve) and a change in demand.
This means that at the same price there will be a change in how much of the good or service is demanded.

What is the difference between change in quantity demanded and change in demand?

Causes:

1. Income changes

Income can change due to :

Wage rises or falls.
Income tax increase or decrease.
Profits earned.

An increase in income means that a consumer is more able to purchase a good or service. The consumer will now buy more of the good at the same price. This leads to an increase in demand and a shift of the curve to the right

A decrease in income means that the consumer is now less able to buy the same amount of the commodity and so less of the good is brought at the same price. This leads to a shift of the demand curve to the left and a decrease in demand.

NOTE: If income increases

At the same price more is demanded. People are more able to buy more.
There is a shift of the curve to the right.
The price is claerly labeled.
The change is clearly labeled with lines going from the axis to the old and new demand curves.
The change in demand is clearly shown.

A change of income shifts the complete curve and at the same price for a good more or less is bought.

Income increased e.g. wage rise more is bought at $20 price.

Income decreased e.g. income taxes rise less is bought at $20 price.

Exception:

When an income rise leads to an increase in demand for a good, we call it a normal good. If a rise in income leads consumers to demand less of a good, we call it an inferior good. For example, a rise in income may lead consumers to buy less baked beans and more meat, fewer sandshoes and more Nike sports shoes. The baked beans and sandshoes in these example are called inferior goods.

What is an inferior good?

2. Tastes or fashion change

Tastes or fashion may change because, for example, it is advertised that alcohol causes a lot of social problms or tabbacco causes cancer; it found that fish is healthy and that lamb has become less popular recently,or there is change in season from summer to winter increasing the desire for warm clothes.

Note:

At the same price more fish is demanded as it is now more popular, people are more willing to buy more of it.
The opposite has happened for lamb, as it is now less popular, people now buy less of it at the same price.

3. Prices of other goods

Substitute goods.

A substittute good is one that can be used in place of another good - they can replace each other. If the price of one good increases then there will be an increase in demand for the other good as more people start to buy it. e.g.if the price of butter increased then the demand for margarine will increase as more people but it instead of butter. Other substitutes include tea and coffee; petrol and LPG; beef and chicken.

Example:

Suppose the price of Coke rises from $1 a can to $1.50 a can, then there will be an increase in demand for Pepsi because more people will be willing to buy pepsi as it is now comparativly cheaper.

Note:

The price of Pepsi has not changed but the demand for the product has increased.
People are now more willing to buy Pepsi at the same price, because the price of the substitute (Coke) has increased.
There has been a movement along the demand curve for Coke and a shift in the demand curve for Pepsi.

Pepsi and Coke are substitute goods

Butter and margarine are substitute goods. What will happen to demand for both Butter and Margarine if the price of butter rises?

Complementary goods

These are goods used together e.g. cars and petrol; fish and chips; bread and butter
If the price of one changes then the demand for the other is affected.

Example:

If the price of petrol increases then there will be a decrease in the quantity demanded for petrol and a decrease in the demand for cars.

Note

An increase in the price of petrol will lead to a decrease in demand for cars This will mean that less people are buying petrol and so that the demand for goods that are used with petrol, such as cars, will decrease. The price of cars hasn’t changed, but because less petrol is being used then the demand for cars has decreased.

Petrol and Cars are complementary goods.

SUMMARY