WhatFactorsInfluenceMarketDemand?IncomeofconsumersIncrease in income increasesdemand if product is normal.decreases demand if product is inferior.Prices of related goodsIncrease inpriceofrelatedgoodincreasesdemand if productsare substitutes,decreases demand if products arecomplementsTastesPopulationanddemographicsExpected future pricesWe will discusshow each of these affects demand@2015PearsonEducation,Inc.11
© 2015 Pearson Education, Inc. 11 What Factors Influence Market Demand? Income of consumers Increase in income increases demand if product is normal, decreases demand if product is inferior. Prices of related goods Increase in price of related good increases demand if products are substitutes, decreases demand if products are complements Tastes Population and demographics Expected future prices We will discuss how each of these affects demand
Change in Incomeof consumersNormal good:A good for which the demand increases asPriceincome rises,and decreases as income fallsClothingExamples:DDRestaurant meals0QuantityVacationsEffectofincreaseinincome,ifgoodisnormalInferior good:A good for which the demand decreases asPriceincomerises,and increases as incomefalls.Examples:Second-hand clothingDD20RamennoodlesQuantityEffectofincreaseinincome,ifgoodisinferioror inferior goods?Are smartphonesnormal12@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 12 Change in Income of consumers Normal good: A good for which the demand increases as income rises, and decreases as income falls. Examples: Clothing Restaurant meals Vacations Inferior good: A good for which the demand decreases as income rises, and increases as income falls. Examples: Second-hand clothing Ramen noodles Are smartphones normal or inferior goods? Effect of increase in income, if good is normal Effect of increase in income, if good is inferior
Change in the Price of Related GoodsSubstitutes:Goods and services that can be used forPricethe same purpose.Examples:BigMacandWhopperDD.FordF-150and DodgeRam0QuantityJeans andKhakisEffectondemandforBigMacs,ifpriceofWhopperincreasesComplements:Goods and services that are used togetherPriceExamples:BigMacandMcDonald's friesHot dogs and hot dog bunsDD20QuantityLeft shoes and right shoesEffectondemandforBigMacsifpriceofMcDonald'sfriesincreases13@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 13 Change in the Price of Related Goods Substitutes: Goods and services that can be used for the same purpose. Examples: Big Mac and Whopper Ford F-150 and Dodge Ram Jeans and Khakis Complements: Goods and services that are used together. Examples: Big Mac and McDonald’s fries Hot dogs and hot dog buns Left shoes and right shoes Effect on demand for Big Macs, if price of Whopper increases Effect on demand for Big Macs, if price of McDonald’s fries increases
MakingAreTablets Substitutesfor E-readers?theConnectionTablet computers and e-readers are notidentical products, but they are similar.To see whether consumers view tabletsassubstitutesfore-readers,weneedto look at data.Astabletshavebecomemorepopularin the early 2010s, worldwide sales ofe-readershave fallen:2011:23million2012: 16 million2013: 5.8 million (forecast)It seemsconsumershavedecidedthattabletsareaclosesubstitutefore-readers@2015PearsonEducation,Inc.14
© 2015 Pearson Education, Inc. 14 Making the Connection Are Tablets Substitutes for E-readers? Tablet computers and e-readers are not identical products, but they are similar. To see whether consumers view tablets as substitutes for e-readers, we need to look at data. As tablets have become more popular in the early 2010s, worldwide sales of e-readers have fallen: • 2011: 23 million • 2012: 16 million • 2013: 5.8 million (forecast) It seems consumers have decided that tablets are a close substitute for e-readers
Change in Tastes or Population/demographicsTastesPriceIf consumers'tastes change, they may buymore or less of the product.D2DExample:0QuantityIf consumersbecome moreconcerned aboutEffectondemandforfastfood,ifconsumerswanttoeathealthyeating healthily, they might decrease theirdemandforfastfood.Population and demographicsPriceIncreases in the number of people buyingsomething willincrease the amountdemanded.DD20QuantityExample:An increaseinthe elderlyEffectondemandformedicalpopulation increases thecare,asthepopulationagesdemandformedicalcare15@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 15 Change in Tastes or Population/demographics Tastes If consumers’ tastes change, they may buy more or less of the product. Example: If consumers become more concerned about eating healthily, they might decrease their demand for fast food. Population and demographics Increases in the number of people buying something will increase the amount demanded. Example: An increase in the elderly population increases the demand for medical care. Effect on demand for fast food, if consumers want to eat healthy Effect on demand for medical care, as the population ages