The Law of Demand The work was done by Daria Beloglazova. - презентация

1 The Law of Demand The work was done by Daria Beloglazova.

2 Definition The law of demand states that as the price of a good or service falls, the quantity of that item which is demanded will increase. For instance: If you think about it this is very logical – if a Mars Bar only cost $0.50 we would all buy a lot more of them!

3 We can represent the law of demand on a graph The illustration The demand AB Price5020 Quantity10,00030,000

4 The difference between the demand and the quantity demand The graph that shows changes in the quantity demand The graph that shows changes in the demand

5 Shifts in the Demand Curve The following demand factors: Changes in the level of disposable income A change to the rate of interest paid on borrowings Any change to the confidence that consumers or businesses have about their own economic future The price of any substitute products or products that are considered complements Any change to the population of people in the market for the product

6 Demand Factors Faсtors which may lead to an increase in demand A fall in the cash rate The expectations An increase in wages paid A fall in the price of a complementary product An increase in the price of a substitute product An improvement in the rate of confidence by either businesses or consumers An increase in the number of people who are in the market to purchase the product (in the population in the market) Factors which may lead to a decrease in demand An increase in the cash rate The expectations A decrease in the wages paid An increase in the price of a complementary product A decrease in the price of a substitute product An improvement in the economic sentiment of either businesses or consumers A fall in the number of people who are in the market to purchase the product (in the population in the market)

7 For instance

8 Substitute good In economics, one way two or more goods are classified is by examining the relationship of the demand schedules when the price of one good changes. This relationship between demand schedules leads to classification of goods as either substitutes or complements. Substitute goods are goods which, as a result of changed conditions, may replace each other in use (or consumption) This means a good's demand is increased when the price of another good is increased

9 Complementary good In economics, a complementary good is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased

10 For instance

11 The Elasticity of Demand Demand curves for different products will look very unlike one another. Consider two products – bread and Cherry Ripe chocolate bars. These products are both food items, and yet the demand line for each will be unique. 1) Demand on the bread- inelastic demand curve- a large change in price will result in only a small change in quantity. 2) Obviously in this case the percentage fall in quantity is much higher than the increase in price. As the demand for this product is highly responsive to a change in price, we refer to this as an elastic demand curve.

12 Factors affecting the Elasticity of Demand The availability of substitutes: The percentage of your income: Decision time. Is the item a need or a want

13 Held Constant to move the demand curve

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