Who am I?!
My interests….
- Education
- Studied political science and business at university
- Travelling
- Lived and travelled in
Europe after university
- Sports
- Played competitive basketball, still love it!
- Guitar
- Love playing; favourite guitarist is Jimi Hendrix
My family…
My nephew, Luke!
Demand & The Demand Curve
February 25, 2014
Cool Clip
http://www.youtube.com/watch?v=Ng3XHPdexNM
What is a Market?
A market can be….
- A location (Corner store to Toronto Stock Exchange)
- A network of buyers and sellers for a product (market for a commodity: e.g. oil)
- The demand for a product (e.g. “the market for SUVs is sluggish”)
- A price determination process (buyers and sellers reaching mutually acceptable price of
something)
Question: Who determines what the price will be for various goods and services
in a market?
Answer: The market itself determines price by matching buyers and sellers for a
particular product
Buyers want a low price, sellers want a high price: they need to agree on a price in
the middle.
Our fundamental question: What accounts for the rise and fall
of prices in a free market?
Examining Demand
• Demand is...the quantity of a good or service that buyers will
purchase at various prices during a given period of time.
Demand only exists for:
1) Goods you want
2) Goods you can buy
Common Sense….
The quantity of a product that a consumer will
purchase depends on its price.
1. The higher the price, the less that will be purchased.
2. The lower the price, the more it will be purchased.
Law of Demand
Quantity of demand varies inversely
with price.
Why do consumers buy more of product when the
price falls and less of it when the price rises?
1. Substitution Effect:
As price of a good rises, we substitute similar goods for it. We substitute one
product for another when the price rises past a certain point.
2. Income:
When pop falls from $5 to $4, buyers can get the same product cheaper and save
$1 in extra income. Some will buy more pop, increasing quantity demanded.
When price rises again, buyers pay more to receive the same amount- real income
declines: Many people will buy less pop, decreasing the quantity demanded.
The law of demand: as price falls, the corresponding
quantity demanded tends to increase.
Since price is an obstacle:
1. The higher the price of a product, the less it is
demanded.
2. When the price is reduced, demand increases.
So, there is an "inverse" relationship between price and quantity
demanded. When you graph the relationship, you get a downwardsloping line.
The relationship between price
and quantity demanded is
portrayed in a demand schedule.
This is usually a table showing the quantity demanded at a
certain price.
If the price of t-shirts is…
The consumer would buy in
a given time period
(quantity demanded)
$20
$24
$28
$32
$36
4 t-shirts
3 t-shirts
2 t-shirts
1 t-shirt
0 t-shirts
In the above table, quantity demanded for an individual has fallen by 1 between $24
and $28: demand as a whole is represented by the demand curve.
If the price of t-shirts is…
The consumer would buy in
a given time period
(quantity demanded)
$20
$24
$28
$32
$36
4 t-shirts
3 t-shirts
2 t-shirts
1 t-shirt
0 t-shirts
Let’s graph this curve together.
Individual Demand Curve
40
35
30
25
Price of
T-Shirt
20
Demand
15
10
5
0
0
0.5
1
1.5
2
2.5
3
Quantity Demanded
3.5
4
4.5
The market for the demand of goods isn’t decided by
individuals, but the buying habits of thousands of
consumers that decide the demand for most goods.
The sum of consumer demands for a product is called
the market demand schedule.
Price of TShirt
Buyer 1
Buyer 2
Buyer 3
Buyer 4
Total
Quantity
Demanded
$20
$24
$28
$32
$36
4
3
2
1
0
3
2
1
0
0
5
4
3
2
0
4
3
2
1
0
16
12
8
4
0
Market demand is the total of the individual demands of the four
buyers at each price level. The above table is the market demand
schedule for t-shirts.
Price of TShirt
Buyer 1
Buyer 2
Buyer 3
Buyer 4
Total
Quantity
Demanded
$20
$24
$28
$32
$36
4
3
2
1
0
3
2
1
0
0
5
4
3
2
0
4
3
2
1
0
16
12
8
4
0
Can you graph the demand curve?
Market Demand Curve
40
35
30
25
Price of
T-Shirt
20
Demand
15
10
5
0
0
2
4
6
8
10
12
Quantity Demanded
14
16
18
How age affects consumer demand curves:
http://www.businessinsider.com/consumer-demand-curves-2012-11?op=1
With a partner:
Pick an example of a good people demand that is
subject to change depending on price. Create a demand curve for a group of buyers
using either a spreadsheet or hand-written. When you are finished, show Mr. Innis
your curve and the product you decided to analyze.
Price of
(Insert good
here)
Buyer 1
Buyer 2
Buyer 3
Buyer 4
Total
Quantity
Demanded
e.g. $15
8
6
5
7
26
Khan Academy’s take on the
law of demand found here
Interactive demand curve
page found here
MIT open courseware on
S&D found here