3. $5 4 3 2 1 … a specified time period … other things being equal 10 20 35 55 80 Price decreases ; QD increases Consumers “willingness to buy” $5 $4 $3 $2 $1 D 0 10 20 35 55 80 Quantity Demanded DEMAND SCHEDULE P Q D
4. To M arket D emand “ JO” $3 $3 $3 + + 35 39 26 $3 100 From “individual” demand to “market” demand [Total] “ Bo” “ Mo” D D D D = And, what if the price of this product drops from $3 to $2? Individual Demand $2 40 $2 45 $2 30 $2 115
5. . As price decreases … QD increases . 50 .10 $1 I n v e r s e QD 1 QID 2 QD 3 “ Let’s also buy coke for just .10.” Price QD .50 Law of Demand for Coca Cola If Coke, Pepsi, Dr. Pepper, 7-Up, Sprite, Root Beer, & Mountain Dew were all selling for $1, who would buy Coke? OK, Here you are. How many of you non-Coke drinkers would buy Coke for just .50? OK, H ere you are , the “added buyer” coke drinkers. Now, how many of you non-Coke drinkers would buy Coke for just .10? And, here are even more “added buyer” coke drinkers. We have demonstrated the “income effect” . Lower prices increased income so more was consumed. A nd – the “substitution effect”, consumers of higher priced soft drinks bought the lower priced Coke.
6. QD 2 QD 1 Price QD Inverse relationshi p $499.00 [ with 2 yr contract] D Reasons For Downsloping “D” Curve 1. Income Effect –current buyers buy more. 2. Substitution Effect – new buyers now purchase. 3. Diminishing Marginal Utility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered. Change in QD 1. Price change 2. Movement [up/down the demand curve] 3. Point to point [along the curve] “ D” refers to the “whole curve”. [ “all prices” ] “ QD” refers to a “point on the curve” based on a “particular price.” Law of Demand [Change in QD] $350.00 iPhone
7. “ Demand Shifters” [TIMER] 1. T aste [ direct ] 2. I ncome [normal- direct ] [inferior- i n v e r s e ] 3. M arket Size [number of consumers- direct ] 4. E xpectations [of consumers about future *price - direct , about future availability- i n v e r s e , or about future income– direct . 5. R elated Good *Prices [substitutes- direct ] [complements- i n v e r s e ] Changes in “D” [curve] 1. Non price change [ “TIMER” ] 2. Whole “D” curve shifts [There is a change in “QD” but it is not caused by a change in “price.” [ QD-”single price” ; D-”all prices” ] Complement [ i n v e r s e ] Substitute [ Direct ] Butter Bread Bagels P D 3 D 1 D 3 QD 3 QD 1 QD 2 D 1 D 2 P P 1 QD 1 QD 2 P 2 D 1 D 2 D P
8. [ Decrease in price of one; increase in the “D” for the other] Car Prices Gasoline Demand P QD QD D 1 They are so cheap that even dogs are buying cars P 1 P 2 QD 1 QD 2 No chg in price I’m making more money without dropping my prices. D 2 Complements - Inverse
9. . QS 2 Direct Reasons For Upsloping “S” Curve 1. There is increasing opportunity cost if you don’t produce. 2. Current producers produce more [overtime/more shifts] 3. New producers are attracted to the market. “ S” refers to the “whole supply curve” and refers to what producers will supply at “different prices” “ QS” refers to a “point on the curve” and refers to what producers will supply at a “particular price” Change in “QS” 1. Price change 2. Movement (up/down “S” curve) 3. Point to point (along “S” curve) S QS 1 P 2 P 1 Price increases ; QS increases Price decreases ; QS decreases Producers want the highest price possible. Law of Supply
10. Aggieland Football Season Tickets $90 Why do the Ags have a scoreboard on the outside of the stadium?