Demand Schedules and Curves

-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

• 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?
Fr 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).       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 Chocologsfrom $2 to $4 has decreased the quantity demanded from 5 to 3. 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 Cocologs  falls from $4 to $1 then quantity demanded increases from 3 s to 6 Chocologs. - The reverse happens if price rises then quantity demanded decreases.   In the above graph for Chocologs what would be the new quantity bought if price rose from $2 to $5?         A Movement along the curve is caused only by a change in price resulting in a new quantity demanded, assuming ceteris paribus. Market demand Market demand is the horizontal summation of each individuals demand at each price.   Market Demand Schedule For Poke'mon Cards Price -($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 7 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.           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 clearly 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 Aggregate household spending While different people will make different choices on what to buy or how to spend their time, there is an overall pattern of NZ household spending.   Household People are grouped as households i.e. people living together "under the same roof" e.g. groups flatting; families, pensioners; single people on their own. All are treated as households.   Aggregate household spending Totals the spending of all consumers in a given year..   What is a household?       What is aggregate spending?       Average household spending Average spending is usually measured by the mean. To get mean or average spending the spending of all households is added and divided by the number of households. AVERAGE WEEKLY HOUSEHOLD EXPENDITURE 2001     Group Annual Household income ($)   Under $14,900 $25,900 to $32,399 $51,100 to $62,299 Food. 62.10 95.60 141.40 Housing group (rent, mortgage etc.) 85.20 137.20 187.70 Household operation (power, telephone, furnishings etc) 55.80 71.40 104.70 Apparel group 11.70 13.00 28.90 Transportation group 51.50 88.10 130.70 Other goods (Books, newspapers, tobacco, alcohol etc) 37.90 58.00 91.00 Other Services 58.50 79.60 170.60 TOTAL $362.00 $543.00 855.10 Source: Statistics New Zealand Patterns of spending change with income Low incomes People on lower incomes have to spend all their income on their needs (food, shelter etc.) there is no money left over for savings and other wants (such as luxuries). More inferior goods are brought (goods that aren't so good such as cheaper cuts of meat etc.)   Middle incomes More money is spent on necessities (more expensive food is bought for example) and there is some more money left over for some luxuiries and some savings -  but not a lot.   High incomes Even more is spent on better food and shelter (housing) but there is a lot more money left over for luxury goods and savings. Wants for luxuries are unlimited so far more is spent on holidays, extra cars, boats etc. Savings also increase for future wants or to further increase income.   Example Income and spending   Holloman Anderwon Muirfoot Total income after tax  per year $20,000 $50,000 $80,000           Spending Needs - food etc. $20,000 $35,000 $40,000   A few extra wants   $10,000 $11,000   Luxuries   $  3,000 $15,000   Savings    $ 2,000 $14,000   Total $20,000 $40,000 $80,000   Why must Holloman spend everything in the above chart on food, power, housing etc.?       How do the spending patterns of Anderwon and Muirfoot differ?     THE RELATIONSHIP BETWEEN HOUSEHOLD INCOMES AND SPENDING PATTERNS  Group 1 consists of basic goods essential to provide a minimum standard of living. Households with low levels of income spend most of their money on this group of goods. As aggregate income rises, the consumption of basic necessities (like basic food, clothing and shelter) also rise. But after a time the increased expenditure on these items tails off. For example, although we consume better quality food which is more expensive, we can still only eat so much. The same applies to clothing and housing. As income increases expenditure on this category of goods increases, but at a relatively slower rate until eventually the changes become minimal. Group 2 includes basic services such as transport and power. The demand for transportation is likely to continue to rise for longer than basic necessities. Expenditure on public transport may not change greatly, and may even decrease as aggregate income rises. However, this is more than made up by the purchase and use of cars. With higher income, households can afford to own several cars. Group 3 Luxury goods and services. Households with relatively higher levels of income do not spend a lot more on basic needs; instead, an increasing proportion of their income is spent on goods and services in Group 3. These include services that we may class as luxuries � holidays, recreation, or going to a concert. There is no limit to recreational spending. As people�s incomes increase they will spend a lot more on going to restaurants, going on holidays etc. Group 4 Savings. Households on higher incomes do not spend all of their money and are able to save. In conclusion we can predict that An increase in income will lead to an increase in spending on luxury goods and savings. During an economic boom spending on luxury goods will increase as incomes increase. Savings will also increase but spending in groups 1 and 2 will remain mostly unchanged. During a downturn spending on luxury goods will decrease and savings will also decrease as incomes fall. Spending in groups 1 and 2 will remain mostly unchanged.