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”?