1. Economic Principles:
Demand
Who’s Da Man? (Me.)

2. Who Wants This Watch?
• Owned by me for 5 years.
• Broken.
$1,000.00

3. Who Wants This Watch?
• Owned by Brad Pitt for 5 years.
• Broken.
$1,000.00

4. What is Demand?
• In your own words, 1 minute, in your
notes.
30 seconds left
• The quantities of a particular good or
service consumers are willing and
able to buy at different possible
prices at a particular time.

5. Demand vs. “Want”
I want this -->
However, demand refers to being willing and able.

6. Let’s Talk About
Hamburgers

7. At higher prices,
people buy less of
something than they
do at lower prices.

8. Why?
Price Effect
4 factors that explain price
effect

9. Buying Power
•If prices go down, you can
buy more hamburgers with
the same amount of
money.
•Opposite, if price goes up.

10. Diminishing Personal
Value
• If prices go down, you might eat
hamburgers all the time instead of
once a week.
• For example, normally burgers are
$5.00 so you only have it once a
week, but if the price falls to $1.00
you will eat burgers for lunch
everyday.

11. Diminishing Marginal
Utility
• How good does the first bite of that
first burger taste?
• How good does the last bite of your
fifth burger taste?
• The only way you’re going to eat five
burgers is if the price is lower.

12. Substitutes
• What might you have for lunch if burgers
are too expensive?
• Availability of substitutes keeps prices
from getting too high.
• What is a substitute for…?

13. Price Effect vs. Change in
Demand
• For demand to change, the entire
demand curve must move.
• What causes demand to increase or
decrease?

14. Price Elasticity of
Demand
• Measurement of the price effect.
• If the price changes, how much does
the quantity demanded change?
• Inelastic <-------------------->Elastic

15. • Two curves, one with a steeper slope
than the other.
• Same change in price, which one
now has a higher quantity
demanded?
• So, which one is more elastic?
A
B
$2.00
$1.00
600 700
500

16. Elastic Inelastic
• Lots of substitutes • Few substitutes
available • Small part of
• Larger part of a budget
person’s budget • Little or no time to
• People have a long adjust to price
time to adjust to a changes
price change • Examples?
• Examples?

17. Change in Income
• If incomes rise, people have more
money to spend.
• Either buy greater quantities at the
same price or willing to pay higher
prices.

18. Prices or Availability of
Substitutes
• If the price of one item changes a
shift in demand for a substitute
occurs.
• Example?

19. Prices or Availability of
Complementary Goods
• Goods that are used together
• Examples?
• How might the change in price of one
complementary good affect another?
• Price of one goes up, the demand for
the other goes down.

20. Change in Weather or
Season
• Demand for some items changes
based on the temperature or the
weather.
• Like what?

21. Change In the Number of
Buyers
• If the population of an area
increases, then there is more
demand.

22. Change in Styles, Tastes,
Habits
• What is the current demand for
parachute pants?

23. Change in Expectations
• What if there was a rumor that your
favorite fast food restaurant might
shut down? How would that affect
your demand?

24. Practice
• The price of maple syrup goes up
due to a terrible maple tree virus.
What might happen to the demand
for pancake mix?
• The demand for pancake mix will go
down.
Complementary goods

25. • I invent a new type of orange juice
machine that can convert 100% of an
orange into the most delicious orange
juice anyone has ever tasted for much
cheaper than traditional production.
Therefore, the price of orange juice goes
down. What happens to the demand for
apple juice?
• Demand for apple juice goes down.
Substitutes

26. • Britney Spears, who everyone thinks
is totally sweet, decides to start
wearing raccoon fur hats all the time.
How might this affect the demand for
raccoon fur hats?
• The demand will go up.
Change in styles, tastes, habits.

27. • A new law is written that says all
computers sold after January 31st,
2009 must be made by Apple. What
might happen to the demand for PC’s
prior to that date?
• The demand for PC’s will go up
Change in expectations

28. • A new multi-national company moves it’s
headquarters into Bowling Green, OH.
The company is bringing 10,000 people
from out of town to live in BG. How might
this affect the demand for pizza in BG?
• Due to more people in the market, the
demand will go up
Change in number of buyers

29. • Microsoft decides to drop the price of
the Xbox 360 to $100. How does
this affect the demand? Think
carefully about price affect vs.
change in demand!
• There is no change in demand.
However, there is a change in the
quantity demanded.