5Law of DemandQuantity of a good demanded varies inversely with its priceHigher price = Lower quantity demandedLower price = Higher quantity demanded
6Marginal Utility Margin, marginal always mean CHANGE Utility means usefulness/satisfactionMarginal utility: amount of additional satisfaction you get from each additional unit of a goodLaw of diminishing marginal utility: As you consume more of something you get less added satisfaction from each unit decreasing demand
7Factors Affecting Quantity Demanded Change in QUANTITY demanded- the market has not changed- no new demand curveChange in Price Change in QUANTITY demanded
9Factors Affecting Demand Change in DEMAND-the market has changed- NEW demand curve (the demand curve has “shifted”) at ALL prices there will be a NEW quantity demandedConsumer incomeConsumer tastesSubstitutes’ pricesComplements’ pricesConsumer expectationsNumber of consumers changes
11Section 3-5 Demand Elasticity Elasticity measures how sensitive consumers are to price changes. Demand is elastic when a change in price causes a large change in demand. Demand is inelastic when a change in price causes a small change in demand. Demand is unit elastic when a change in price causes a proportional change in demand.Click the mouse button or press the Space Bar to display the information.
12Section 3-9 The Total Expenditures Test Price times quantity demanded equals total expenditures. Changes in expenditures depend on the elasticity of a demand curve—if the change in price and expenditures move in opposite directions on the curve, the demand is elastic, if they move in the same direction, the demand is inelastic; if there is no change in expenditures, demand is unit elastic. Understanding the relationship between elasticity and profits can help producers effectively price their products.Click the mouse button or press the Space Bar to display the information.
14Section 3-14 Determinants of Demand Elasticity Demand is elastic if the answer to the following questions are “yes”. Can the purchase be delayed? Some purchases cannot be delayed, regardless of price changes. Are adequate substitutes available? Price changes can cause consumers to substitute on product for a similar product.Does the purchase use a large portion of income? Demand elasticity can increase when a product commands a large portion of a consumer’s income.Click the mouse button or press the Space Bar to display the information.
15Section 3-15Determinants of Demand Elasticity (cont.)
19A change in quantity supplied is the change in amount offered for sale in response to a change in price.Producers have the freedom, if prices fall too low, to slow or stop production or leave the market completely. If the price rises, the producer can step up production levels.
20Changes in SupplyChange in supply means at ALL prices there are different quantities suppliedCauses of change in supplyChange in cost of inputsNew technologyProducer expectationsGovernment ActionsTaxesRegulationsSubsidies
21A change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market.