DEMAND & Factors Affecting Demand

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What is demand, demand schedule & demand curve. How demand changes due to prices and factors affecting change in demand.

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Presentation Transcript

DEMAND:

& FACTORS AFFECTING DEMAND DEMAND

An Introduction to Demand:

An Introduction to Demand LAW OF DEMAND: Inverse Correlation between Price & Demand. Prices being independent variable & Quantity demanded being dependent variable. Demand Curve: A curve that shows the quantities demanded at all possible prices. Law of Demand: rule stating that consumers will buy more of a product at lower prices and less at higher prices.

Individual & Market Demand Curve:

Individual & Market Demand Curve Question: How do the three demand curves differ? Market demand curve shows the quantity by everyone in the market who is interested in purchasing a product. Point a, b & c on the market demand curve represents the CDs Mike and Julia would purchase at respective price. To get the market demand curve, we add together the number of CDs that Mike and Julia would purchase at price a, b & c.

Demand and Marginal Utility:

Demand and Marginal Utility The extra usefulness or additional satisfaction a person gets from acquiring or using one more unit of a product. We buy a product in the first place because we feel that the product is useful and will give satisfaction. But when we use more and more of a product, we encounter diminishing marginal utility. Meaning – the extra satisfaction that we get from using additional quantities of the product begins to decline. Example: First drink when you were thirsty would give most satisfaction. Second drink would give less satisfaction as you are less thirsty. Third drink would give least satisfaction as you are not thirsty. So you would not be willing to pay as much for the second and third drink as you paid for the first drink. Marginal Utility Diminishing Marginal Utility

Change in Quantity Demanded:

Change in Quantity Demanded Only price can cause a change in quantity demanded. Change in quantity demanded at every possible price OR Movement along the demand curve due to change in price.

Change in Quantity Demanded:

Change in Quantity Demanded A change in demand occurs when people decide to purchase different amounts of a product at the same price . An increase in demand appears as a shift of the demand curve to the right. A decrease in demand appears as a shift to the left.

Change in Demand:

Change in Demand Consumer Income Consumer Taste Substitute Complements Expectations Number of Consumers Demand can change due to changes in the determinants of demand:

Change in Demand:

Change in Demand Consumer Taste Consumers changing their minds about products they buy due to advertisements, fashion trends, change of season, rumor etc. Demand can change due to changes in the determinants of demand: Consumer Income Consumer Taste Substitute Complements Expectations Number of Consumers Consumer Income Changes in consumer income can cause a change in demand. An increase in income means people can afford to buy more at all possible prices. Example?

Change in Demand:

Change in Demand Demand can change due to changes in the determinants of demand: Consumer Income Consumer Taste Substitute Complements Expectations Number of Consumers Substitute Change in price of related products can cause change in demand. Example? Butter & Margarine. Complements Change in use of one product change the use of other related product. Example? Personal computer & Softwares

Change in Demand:

Change in Demand Demand can change due to changes in the determinants of demand: Consumer Income Consumer Taste Substitute Complements Expectations Number of Consumers Expectations The way people think about future might affect the demand. Example? Samsung Galaxy sold more than iPhone 4. Why? N umber of Consumers Change in number of consumers. In-migration will make demand to increase & Out-migration would make the demand to decrease.

Critical thinking:

How & why does a change in price affect the demand for substitute? Provide an example. Look at figure 4.4 on page 99. Assume that a new CD format will come out soon. What do you think will happen to the market demand curve D? Explain. Critical thinking

Slide 12:

Image – Diminishing Marginal Utility: http ://absarforex.blogspot.com/2011/05/explain-law-of-diminishing- marginal.html

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