Factors Affecting Demand.ppt

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					    Factors Affecting Demand

Change in Quantity vs. Change in Demand
Change in Price
   Movement from one
    point to another on the
    demand curve in
    response to a change in
    price
                              Price
   Income effect—change
    in price alters real
    income




                                      Qty
Nonprice Determinants of
Demand(Curve Shifts)
   Consumer Income
   Consumer Tastes and Preferences
   Prices of Substitutes
   Prices of Complementary Goods
   Change in Expectations
   Number of Consumers
Consumer Income
   Normal Goods vs.
    Inferior Goods
   If income goes up,
                           Price
    consumers demand
    less inferior goods,
    but more normal
    goods
                                                         D1
                                                  D2


                                               Qty
                                   Loss of Income with
                                   a normal good
Consumer Tastes and Preferences
   Consumer tastes are affected by
    advertising, news reports, trends, new
    products, seasons, etc.
   Consumers may prefer one product
    over another over time
   Concerns over health have led to an
    increase in demand for organic foods
Prices of Substitutes
   When the price of a related product
    changes, it could increase or decrease
    demand of a similar product
   Butter vs. margarine
   Increase in price of butter could
    increase demand for margarine
Prices of Complements
   Complements are products that are
    used together
   Computer and software
   Automobiles and gasoline
   When the demand increases for one, it
    would also increase for the other
Change in Expectations
   Changes in the near future could affect
    our buying decisions now
   If consumers believe that gas prices will
    continue to rise, they will demand
    automobiles with higher mpg’s
   What happens when people think that a
    snowstorm is on the way?
Number of Consumers
   More consumers = more demand
   Less consumers = less demand
     Factors Affecting Supply

Change in Quantity vs. Change in Supply
Change in Price
   Movement along
   curve signaling a
   change in the
   quantity offered in   Price

   response to a
   change in price



                                 Qty
Determinants of Supply (Curve
Shifts)
   Cost of Resources
   Prices of other goods that can be
    produced
   Technology/Productivity
   Taxes and Subsidies/Govt. Regulations
   Expectations
   Number of Sellers
Cost of Resources
   The materials used                           S2

    to produce a good
    or service                                        S1


   If price of inputs    Price
    increases, costs go
    up and producers
    are willing to sell
    less at each and
    every given price
                                                 Qty
                                  Cost of inputs increases
Prices of Other Goods That Can Be
Produced
   If the market price for another good a
    company can produce goes up, the
    supply of that particular good will go up
   What happens to the supply of the
    current good they produce?
Technology/Productivity
   More products are produced using the same
    amount of resources (more efficient)
   Increases in productivity increase supply
   Decreases in productivity decrease supply
   Introduction of new technology usually
    increases productivity and, consequently,
    increases supply
   Sometimes new technology has a lot of
    problems or can be costly, which would
    decrease supply
Taxes and Subsidies/Govt. Reg.
   Tax: money a business has to pay to the
    government on profit
     – Causes supply to decrease
   Subsidy: government payment to encourage or
    protect economic activity
     – Causes supply to increase
     – IE: farming
   Government puts into action new laws, regulations
    and mandates
   Usually increases costs for producers
     – Supply generally goes down
Expectations
   What producers believe will happen to
    the price of a product in the future
   If they believe price will go up in the
    future, their supply now will go down
   From weather, international economics,
    etc.
Number of Sellers
   More producers = More supply
Supply and Demand Video
   http://player.discoveryeducation.com/ind
   ex.cfm?guidAssetId=03AB484C-03FD-
   472F-937D-
   23478686402D&blnFromSearch=1&pro
   ductcode=US

				
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posted:10/11/2011
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