Demand Part Two: Market Demand

Individual vs. Market Demand

• Companies like Coca-Cola and Exxon Mobil are interested in market demand, not individual demand.
• Market Demand: Total demand of everyone combined for a product.

Estimating Market Demand

1. Survey Customers
   • Ask how many units they would buy at different prices.
   • Example: Levi's surveys about the number of jeans people would buy at various prices.
2. Compile Survey Results
   • Collect responses from surveyed individuals (e.g., 500 people).
   • Calculate total quantity demanded at each price.
   • Example: At $150, 90 pairs of jeans are bought; at $125, 110 pairs.
3. Create Demand Curve
   • Graph the relationship between price and total quantity demanded.
   • Demand curve is downward sloping, showing inverse relationship between price and quantity.
4. Scale to Market Demand
   • Scale the survey results to reflect the entire market.
   • Scaling Factor: Total market size / survey size.
   • Example: For a market of 300 million using 500 respondents, the scaling factor is 600,000.
   • Plot the scaled demand curve for the market.

Demand Curve Characteristics

• Demand Curve: Shows the relationship between price and quantity demanded.
• Slope: Downward sloping, indicating as price decreases, quantity demanded increases.

Margins Affecting Demand

• Intensive Margin: Cheaper prices increase quantity bought by each customer.
• Extensive Margin: Cheaper prices attract more customers.

Changes in Demand

• Movement Along the Demand Curve:
  • Occurs when the price changes.
  • Example: Price of gas drops from $4.50 to $4.00, increasing demand from 30M to 40M gallons.
• Change in Quantity Demanded: Movement along the curve due to price change.
• Change in Demand: Shift of the entire demand curve due to factors other than price.
  • Example: Introduction of Teslas decreases gasoline demand; curve shifts left.

Illustrations of Demand Changes

• Increase in Quantity Demanded: Price decreases; movement down/right along curve.
• Increase in Demand: Non-price factors increase demand; curve shifts right.
• Decrease in Quantity Demanded: Price increases; movement up/left along curve.
• Decrease in Demand: Non-price factors decrease demand; curve shifts left.

Examples of Demand Shifts

• MSU Basketball Games: Successful season results in higher demand for tickets (rightward shift).
• Cable TV Subscribers: Rise of streaming services leads to decreased demand (leftward shift).

Recap

• Understanding demand involves both individual and market perspectives.
• Changes in prices result in movements along the demand curve, while changes in other factors result in shifts of the demand curve.
• Demand curves and the factors affecting them are essential concepts in understanding market dynamics.