THE
ECONOMIC
WAY OF
THINKING
WHAT IS DEMAND?
The word “DEMAND” can mean a lot of things. It
can be used as a verb – “I demand to see you” or
in ECONOMICS it would mean something along
the lines of “I want”.
 Demand is the amount of goods that consumers
desire and can afford to buy over a range of prices
 Consumers normally want more goods at a lower
price, and less goods at a higher price


For example, the quantity demanded of a soda might
be 300 bottles when it costs $2 and 250 bottles when
it costs $3
WHAT IS DEMAND?
(CON’T)
A good way to think of demand is as a table, with
the left column being the price & the right
column being the units demanded
 Demand graph for a product

Prices are always graphed on the Y-AXIS
 Units demanded (quantity) are always graphed on
the X-AXIS

WHAT DETERMINES
PRICE?







If demand INCREASES, prices RISE!
Prices are never steady regardless if they are agricultural
or non-agricultural products.
Higher prices : demand
Lower prices:
demand
Greater quantities sell at lower prices
Higher prices come from selling smaller quantities
At lower prices new buyers come into the market & those
already buying, buy more
 Example: Compare rib eye steaks at $6.25/lb with rib
eye steaks at $2.25/lb. At the lower price people that
had not been eating rib eyes would enter the market &
more steaks would be sold.
WHY DOES DEMAND
SLOPE DOWNWARD?
The more a product costs, the less of it a person
can afford to buy with the same income
 Example: Coke and Pepsi

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Let’s say the average person spends $3 each day on
soda, and Coke and Pepsi each cost $1.50.
One would assume that someone with $3 would buy 1
Pepsi and 1 Coke.
Now let’s assume Pepsi drops its price to $1 per soda
Result: Someone with $3 would buy 3 Pepsis because
there is more value for money here
The quantity demanded for Pepsi will increase as the
price falls, because Pepsi will attract consumers away
from competing products
WHEN DOES DEMAND
SLOPE UPWARDS?
Some products have demand graphs that result
in a higher demand for a higher price
 Example: Rolex watches

Many people buy Rolex watches simply because they
are EXPENSIVE!
 This is also the same for designer clothes, expensive
cars (Escalade, Range Rover, etc.), and other goods.

WHAT WOULD CHANGE THE
DEMAND OF A GOOD?

CHANGE IN THE NUMBER OF CONSUMERS IN
THE MARKET FOR A PRODUCT
 If the number of consumers in the market for a
product increases, the demand for the product will
increase. If a new high school is built in the same
block as a fast food restaurant, the demand for the
fast-food restaurant's products will increase. When
the school closes for summer vacation, the demand for
the fast-food restaurant's products will decrease
WHAT WOULD CHANGE THE
DEMAND OF A GOOD?

CHANGE IN CONSUMER TASTES AND
PREFERENCES FOR A PRODUCT

If consumer tastes and preferences for a product
change, the demand for the product will change. If
fashion magazines are showing short skirts, the
demand for short skirts will increase. If fashion
magazines show few pictures of short skirts, the
demand for these skirts will decrease.
WHAT WOULD CHANGE THE
DEMAND OF A GOOD?

CHANGE IN CONSUMER INCOME

If consumer income increases, demand for most goods
and services will increase. The reverse is also true. If
consumer income decreases, demand for most goods
and services will decrease. For example, if workers at
a manufacturing facility sign a new contract that
provides a 5% raise, these workers will have more
income and their demand for goods and services will
increase. If Social Security taxes increase for
employees, consumers will have less take-home pay,
and as a result, their demand for goods and services
will decrease.
WHAT WOULD CHANGE THE
DEMAND OF A GOOD?

CHANGE IN THE PRICE OF RELATED
GOODS (COMPLEMENTS)

A change in the price of one good can change the
demand for another good. One type of related goods is
complements-goods that are purchased together. A
decrease in the price of strawberries will cause an
increase in the demand for whipped cream. An
increase in the price of hamburger will cause a
decrease in the demand for hamburger buns.
WHAT WOULD CHANGE THE
DEMAND OF A GOOD?

CHANGE IN THE PRICE OF RELATED
GOODS – SUBSTITUTES

A change in the price of one good can change the
demand for another good. One type of related goods is
substitutes-goods that are bought in place of other
goods. If the price of movie tickets increases, the
demand for video rentals may increase. If the price of
Hamburger Heaven's hamburgers decreases, the
demand for Big Burger's hamburgers may decrease.
All of these factors are called SHIFTERS, because they
tend to change or shift the relationship between the
price and the quantity demanded.