The Demand curveThe Demand curve

Define ‘Demand’Define ‘Demand’ Diagrammatically show the law of Diagrammatically show the law of

‘Demand’‘Demand’ Explain the determinants of ‘Demand’Explain the determinants of ‘Demand’ Understand the difference between a Understand the difference between a

‘shift in’ and a ‘movement along’ a ‘shift in’ and a ‘movement along’ a demand curve.demand curve.

What is Demand?What is Demand?

The amount that consumers are The amount that consumers are willing and willing and ableable to buy at a given to buy at a given price.price.

Draw two axis!Draw two axis!X= quantityX= quantity

Y = priceY = price

Think!Think!

How will the amount that people wish How will the amount that people wish to buy change as the price changes.to buy change as the price changes.

Now, draw that relationship on the Now, draw that relationship on the axis. Label it Demand.axis. Label it Demand.

Hopefully…Hopefully…Price

Quantity

Demand

The relationshipThe relationship

Normally there is an inverse Normally there is an inverse relationship between the price of a relationship between the price of a good, and the amount that good, and the amount that consumers demand.consumers demand.

‘‘Normal goods’Normal goods’

Why is the Demand curve Why is the Demand curve there?there?

Demand

And not here?

Or here?

Factors that affect DemandFactors that affect Demand

Number of consumersNumber of consumers Consumer tastes and preferencesConsumer tastes and preferences Consumer incomesConsumer incomes Interest ratesInterest rates Price of complimentsPrice of compliments Price of substitutesPrice of substitutes

Demand for new carsDemand for new cars

Relative price of second hand carsRelative price of second hand cars Interest ratesInterest rates Availability of creditAvailability of credit Price of petrol etcPrice of petrol etc Price of public transportPrice of public transport Taxes etcTaxes etc

Effective demandEffective demand

Desire to buy is backed up by the Desire to buy is backed up by the ability to pay.ability to pay.

Latent DemandLatent Demand

The consumer wants the good, but The consumer wants the good, but does not have the financial clout to does not have the financial clout to actually buyactually buy

Aston Martin cars: Big latent Aston Martin cars: Big latent demand!demand!

Derived DemandDerived Demand

Often the demand for a product is Often the demand for a product is dependent upon the demand for dependent upon the demand for another product, another product,

E.g. Bricks: E.g. Bricks:

Inferior goodsInferior goods

Not all goods follow the law of Not all goods follow the law of demand. These are called demand. These are called inferior inferior goods.goods.

There are two types There are two types

Giffen goodsGiffen goods

Veblin goodsVeblin goods

Giffen goodsGiffen goods

Usually thought of as poor quality Usually thought of as poor quality food stuffs. food stuffs.

The price goes up, so they can’t The price goes up, so they can’t afford the other things they used to afford the other things they used to supplement it with, so buy more of supplement it with, so buy more of the basic thing instead. the basic thing instead.

Rice

Veblin goodsVeblin goods

People like some things because they People like some things because they are expensive. Often thought of as are expensive. Often thought of as the ‘snob effect.’the ‘snob effect.’

Complimentary demandComplimentary demand

Demand for two products is linked.Demand for two products is linked. E.g. Mobile phones and network E.g. Mobile phones and network

phone calls.phone calls.

Shifts in demandShifts in demand

What causes the demand What causes the demand curve to shift?curve to shift?

A change in any of those A change in any of those determinants of demand, will lead to determinants of demand, will lead to a new demand curve.a new demand curve.

A change in price will lead to a A change in price will lead to a movement along the existing movement along the existing demand curve.demand curve.

Contractions and Contractions and expansionsexpansionsPrice

Demand

Contraction of demand

Contractions and Contractions and expansionsexpansionsPrice

Demand

Expansion of demand

quantity