SD 7 Determinants of Demand Why might demand

S&D #7 Determinants 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 Price Quantity Demanded $3 60 $5 40 $7 20

With 2 dashed lines, draw the following on the same graph! Price Quantity Demanded $3 80 $3 50 $5 60 $5 30 $7 40 $7 10

Determinants of Demand: factors (other than price) that affect demand 1. 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”?