FACTORS AFFECTING DEMAND

Presented by: ARIEL OCAMPO PENINO

WHY DO YOU
BUY GOODS?
Cite some
examples friends
of Ariel.
 → In economics, demand is the
quantity of a good that

WHAT IS consumers are willing and able

to purchase at various prices

DEMAND? during a given time. The

relationship between price and
quantity demand is also called
the demand curve.
 CETERIS → A demand curve or a supply curve
(which we’ll cover later in this module)
PARIBUS is a relationship between two, and only
two, variables: quantity on the horizontal
ASSUMPTION axis and price on the vertical axis.
 CETERIS → The assumption behind a demand curve

PARIBUS or a supply curve is that no relevant

economic factors, other than the

ASSUMPTION product’s price, are changing.

 CETERIS → Ceteris paribus, a Latin phrase meaning
“other things being equal.” Any given
PARIBUS demand or supply curve is based on the
ceteris paribus assumption that all else is
ASSUMPTION held equal.
 LAW OF → The law of demand is a fundamental
principle of economics that states that at

DEMAND a higher price, consumers will demand a

lower quantity of a good.
Here is a
ceteris → When the price of a certain mobile

paribus phone, for example, iPhone

manufactured by Apple Inc., decreases, it

example to
is assumed that its demand will increase
more in the market. So, if a customer
goes to an Apple store and finds that
understand iPhones have 50% off on their base
price, then one may buy more than one

the concept iPhone.

better.
 → Even though the focus in economics is
FACTORS on the relationship between the price of a
product and how much consumers are
AFFECTING willing and able to buy, it is important to
examine all of the factors that affect the
DEMAND demand for a good or service.These
factors include:
 → There is an inverse (negative)
relationship between the price of a

PRICE OF product and the amount of that product

consumers are willing and able to buy.

THE
Consumers want to buy more of a
product at a low price and less of a
product at a high price. This inverse
PRODUCT relationship between price and the
amount consumers are willing and able
to buy is often referred to as The Law of
Demand.
 → The effect that income has on the amount
of a product that consumers are willing
and able to buy depends on the type of
good we’re talking about. For most
THE goods, there is a positive (direct)
relationship between a consumer’s
CONSUMER’S income and the amount of the good that
one is willing and able to buy. In other
INCOME words, for these goods when income
rises the demand for the product will
increase; when income falls, the demand
for the product will decrease. We call
these types of goods normal goods.
 → As with income, the effect that this has on the
amount that one is willing and able to buy
depends on the type of good we’re talking

THE PRICE about. Think about two goods that are typically
consumed together. For example, bagels and
cream cheese. We call these types of goods

OF compliments. If the price of a bagel goes up,

the Law of Demand tells us that we will be
willing/able to buy fewer bagels. But if we

RELATED want fewer bagels, we will also want to use less

cream cheese (since we typically use them

GOODS
together). Therefore, an increase in the price of
bagels means we want to purchase less cream
cheese. We can summarize this by saying that
when two goods are complements, there is an
inverse relationship between the price of one
good and the demand for the other good.
 → This is a less tangible item that still can
have a big impact on demand. There are
all kinds of things that can change one’s

THE TASTES tastes or preferences that cause people to

want to buy more or less of a product.
AND For example, if a celebrity endorses a
new product, this may increase the
PREFERENCES demand for a product. On the other hand,

OF if a new health study comes out saying

something is bad for your health, this

CONSUMERS may decrease the demand for the

product. Another example is that a
person may have a higher demand for an
umbrella on a rainy day than on a sunny
day.
 → For example, if you hear that Apple will
THE soon introduce a new iPod that has more

CONSUMER’S memory and longer battery life, you (and

other consumers) may decide to wait to
EXPECTATIONS buy an iPod until the new product comes
out. When people decide to wait, they
are decreasing the current demand for
iPods because of what they expect to
happen in the future. Similarly, if you
expect the price of gasoline to go up
tomorrow, you may fill up your car with
gas now. So your demand for gas today
increased because of what you expect to
happen tomorrow.
 → As more or fewer consumers enter the
market this has a direct effect on the

THE NUMBER amount of a product that consumers (in

general) are willing and able to buy. For

OF example, a pizza shop located near a

University will have more demand and

CONSUMERS IN thus higher sales during the fall and

spring semesters. In the summers, when

THE MARKET less students are taking classes, the

demand for their product will decrease
because the number of consumers in the
area has significantly decreased.
ANY
QUESTIONS?
Please as question
if you did not
understand!
 → You are a consultant for Toyota,
analyzing the American market for
Toyota’s new electric cars. Your chief
competitor, Tesla, has recently dropped
the list price of their vehicles by 20%.

EXERCISE When illustrating shifts of the demand

curve, it is customary to draw arrows to
show the direction of change. In which
directions should the arrows be drawn in
the graph below? Which curve represents
old demand, and which curve the new
demand?
ANSWER
THE ARROWS SHOULD BE
DRAWN POINTING EXPLAINATION: IF THE
LEFTWARD. THE CURVE PRICE OF A SUBSTITUTE
ON THE RIGHT GOOD DECREASES, WE
REPRESENTS THE OLD WOULD EXPECT
DEMAND, AND THE DEMAND TO SHIFT
CURVE ON THE LEFT, THE RIGHTWARD.
NEW DEMAND.
 → You are in charge of data analytics for
Home Depot’s South Florida division.

EXCERSISE Recently, you have observed a change in

the market for power generators
(illustrated below). Which explanation
best corresponds with the observed data?
ANSWER

Explaination: Expectations
of an impending storm are
A hurricane is expected to likely to increase short-run
arrive next week. demand, which is consistent
with what we observe in the
demand curves here.
THANK YOU!