Factors Affecting Demand

The Law of Demand

• When the price of something goes up, the demand for it will go down

• When the price of something goes down, the demand for it will go up

Price goes Demand goes

Price goes Demand goes

• If prices were to stay the same, what then could

change demand?

1) Consumer Income

• If consumer income increases, demand will increase (having more money means people will spend more money)

Consumer Income… continued

• Consumer income can increase in two ways:

• 1) Wages increase

• 2) Prices for goods & services decrease

2)Consumer Tastes

• Consumer tastes are shaped by the way products are marketed (advertised) to them

• If an advertising campaign is particularly successful, people tend to buy more of a product, this often means companies can charge a little more for their product. (think designer clothing & luxury cars)

Consumer taste• Consumer tastes

may also be shaped by new trends.

3) Substitutes

• The demand for a product tends to decrease if the price of its substitute decreases

• What are some substitute products?

Substitutes

• If the price of butter goes up, then the demand for margarine will go up.

• If the price of sugar goes up, then the demand for Splenda© will go up

4) Compliments

• Compliments are goods that are related. You need to have both in order to use them

Compliments

Compliments

• If the price of DVD players goes down, then the demand for DVD’s goes up

• If the price of Gillette razor handles goes up, then the demand for the razor blades goes down

4) Change in Expectations

• The way people feel about the future of a product.

Expectations• If GM

announces they will release a new sporty, cheap electric car in December 2009, then the demand for gas powered cars will decrease.

Expectations

• If the FDA were to announce a Mad Cow disease warning in America, then the demand for chicken & pork would increase

Homework

• Read pages 95-99

• Answer questions 1-4 on page 99

• Don’t whine, you didn’t even have to take notes today.