S&D #7 Determinants of Demand Why might demand go up or down even if the price of the product...
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Transcript of S&D #7 Determinants of Demand Why might demand go up or down even if the price of the product...
S&D #7Determinants of Demand
Why might demand go up or down even if the price of the product remains the same? Imagine that the Subway across the street sells 40 $5 foot longs on an average day. Why might quantity demanded go up to 60 even if the price stays at $5?
Graphing Demand
PriceQuantity
Demanded
$3 60
$5 40
$7 20
With 2 dashed lines, draw the following on the same graph!
PriceQuantity
Demanded
$3 80
$5 60
$7 40
PriceQuantity
Demanded
$3 50
$5 30
$7 10
Determinants of Demand: factors (other than price) that affect
demand1. Consumer Income:
• Normal goods: real income increase, demand of these increases
• TVs, steaks, cell phones
• Inferior goods: real income decreases, demand of these increases • Laundry mat, used products, bologna
2. Price of Related Goods
A. Substitutes:
• Price of sub increases, demand of original increases
• Price of sub decreases, demand of original decreases• Price of El Pollo Loco
doubles! Will demand for Subway increase or decrease?
B. Complements: products that you buy together
• EX: milk & cookies– Airplane tickets & hotels
• Price of complement increases, demand for original decreases
• Price of complement decreases, demand for original increases– If there’s a huge salsa sale, what will happen
to the demand for chips?
3. Types of consumers
• Increase in elderly – demand for “elderly” products will increase– Ex:
• Increase in teenagers – demand for “teen” products will increase – Ex:
• Right now, which group is larger? Who should you make products for?
4. Consumer Expectations • How do most ppl feel about the
economy right now?– If consumers expect econ to be bad –
demand decreases– If consumers expect econ to improve –
demand increases
5. Consumer preferences
• The last answer!
• How ppl feel about the product – is it “cool”?