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Think like a consumer!
Preferences Income
Expected Price of
Future Price Other Goods
Population
Let’s start with PRICE
Law of Demand
• When the price goes up, the quantity goes down.
Why
Substitution Effect
Income Effect
The term demand refers to the entire relationship between the price of the good and quantity demanded of the
good.
Demand Curve
• shows the relationship between the
quantity demanded of a good and its
price when all other influences on
consumers’ planned purchases
remain the same.
Income
Price of
Preferences
related Goods
Expected
Population
Future Price
TWO EXAMPLES
1. Income
• When income increases, consumers buy more of most goods and the
demand curve shifts rightward.
Ex. Meat vs. chicken vs. Fish Ex. Printers and Ink
Pepsi and Coca-Cola
When the price of Pepsi Increases, the demand for Cola will
increase. (Substitute Good)
Graph it please!!!
When the price of Ink decreases, the demand for printers will
increases. (Complement Good)
Graph it please!!!
When the price of the good changes and everything else When one of the other 5 factors that influence buying plans
remains the same, there is a change in the quantity changes, there is a change in demand and a shift of the demand
demanded and a movement along the demand curve. curve.
Summary
Variable Effect on Demand Demand Curve
The previous slide presents 5 scenarios. Reread them and answer the following
questions and represent your answer graphically.
Here you Go! ( 9 scenarios)
1. Your income increased from 1000 to 25000, what is the effect on
demand? Explain and graph the effect once on normal goods and
once on inferior goods
2. Your income decreased from 3000 to 950, what is the effect on
demand?
3. The price of sugar increased from 5 to 10, What would be the effect
on the demand of tea?
4. (You are Coca-cola company) and your competitor (Pepsi)
decreased the price of a can from 5 to 2.5, what is the effect on the
demand for cola?
5. The price of meat is expected to increase from 150 to 300 during festivals,
what is the effect on demand?
6. MacDonald's made a big advertising campaign and announced a new and
special taste that will affect the preferences of consumers, what is the effect on
demand?
7. Based on the bad experience of your best friend with (xyz restaurant), this
negative feedback affected your preferences and purchasing behavior negatively,
what is the effect on your demand of Xyz restaurant?
8. The size of population in a country has increased from 80 million to 150
million, what is the effect on demand?
9. After 10 years of a family planning program, the size of population decreased,
what is the effect on demand
Now you can take out your black glasses Ms./Mr. Consumer and get ready to put
on the red glasses and to be Ms./ Mr Producer