DEMAND LEARNING GOALS Explain Define the Law of Demand. ‘Ceteris Paribus’. Graphically show how the law of demand works. Distinguish between movements along and shifts in the demand curve. REVIEW QUESTION What is a market? What is the connection between markets and exchange of goods? INTRODUCING DEMAND DEMAND DEFINITION the quanity of a product that consumers are willing and able to buy at a given price Is DEMAND TABLE PRICE ($) QUANTITY 100 5 90 6 70 7 50 10 30 16 20 25 10 50 What do you observe? Your Income is $ 500 THE LAW OF DEMAND STATES: that as the price for a product increases, the quantity demanded will decrease and vice versa, as prices decrease demand will increase (ceteris paribus) THE LAW OF DEMAND THE LAW OF DEMAND States that as the price for a product increases, the quantity demanded will decrease and vice versa, as prices decrease demand will increase (ceteris paribus) CETERIS PARIBUS SO… If all other factors remain fixed (constant) An increase in price Will cause a decrease In quantity demanded CETERIS PARIBUS CHANGE PRICE ONLY We will get a MOVEMENT ALONG (UP or DOWN) curve the MOVEMENTS ALONG THE DEMAND CURVE Changes in Price will cause movements along the demand curve. THE LAW OF DEMAND NOTE I N V E R S E THE GRAPH P PRICE ($) QUANTITY 120 100 5 100 90 6 80 70 7 50 10 THE DEMAND CURVE 60 40 30 16 20 20 10 25 50 0 0 10 20 30 40 50 60 Q THE DEMAND CURVE Has a negative gradient Slopes downwards from left to right Opposite relationship between P and Q Means AS P Q CETERIS PARIBUS SHIFTS IN THE DEMAND CURVE SHIFTS IN THE DEMAND CURVE What happens if I INCREASE INCOME INCOME = $2000 INCOME $2000 PRICE ($) A CHANGE IN OTHER FACTORS QUANTITY if income $500 100 5 90 6 70 7 50 10 30 16 20 25 10 50 NEW QUANTITY If Y= $2000 What happens to the DEMAND CURVE? SHIFTS IN THE DEMAND CURVE The demand curve shifts OUTWARD to the LEFT (decrease) RIGHT (increase) Let’s investigate the REASONS FOR SHIFTS In the demand curve OTHER ? ECONOMIC CLIMATE TASTES & FASHION COMPLEMENTS & SUBSTITUTES INCOME FACTORS THAT CAUSE SHIFTS IN DEMAND FASHION & TASTES - As goods become popular Demand shifts to the right A DECREASE WILL CAUSE A SHIFT TO THE LEFT SHIFTS IN DEMAND INCREASE INCOME causes Demand to shift to the right SHIFTS IN DEMAND SUBSTITUTES COMPLEMENTS Substitutes are goods that replace each other e.g. Tea and Coffee A decrease in the demand for tea will cause an increase Complements’ are products which are used together e.g. Tea and Sugar. An increase in the demand for tea will cause right shift in the demand curve for sugar. SHIFTS IN DEMAND SUBSTITUTES COMPLEMENTS An increase in the demand of coffee will cause a decrease in demand for tea An increase in demand for coffee will cause an increase in the demand for sugar QUESTION What if we increase the PRICE of coffee ??? What happens to demand for tea? What about the demand for sugar if the PRICE of coffee increases? WHY? SO … A FALL in consumer incomes. Decreased demand for a complement Increased demand for a substitute A fall in the popularity of a product Will ALL cause a left shift in demand. DECREASE IN DEMAND VOCABULARY DEMAND CETERIS PARIBUS Is the quanity of a "all other things being equal or product that consumers are willing and able to buy at a given held constant." price COMPLEMENTS Complements’ are products which are used together e.g. Tea and Sugar SUBSTITUTES Substitutes are goods that replace each other e.g. Tea and Coffee