2Law of Diminishing Marginal Utility Definition: the marginal benefit of using each additional unit of a product during a given period of time will decline
3How does this affect the demand curve? The demand curve slopes downward because an individuals utility, or overall satisfaction, decreases as they obtain more of a good or service
4Example of Law of Diminishing Marginal Utility On a hot day, the ice cream truck rolls through your neighborhoodYou will most likely receive the most satisfaction from the first ice cream bar you purchase rather than the second, third, or fourth
5Why do consumers demand more goods and services at lower prices and fewer at higher prices? 2 reasons:1. Income effect: the change in the amount that consumers will buy because the purchasing power of their income changes
6Cont.2. Substitution effect: change in the amount that consumers will buy because they buy substitute goods instead
7Change in Quantity Demanded Definition: an increase or decrease in the amount demanded because of change in priceA change in quantity demanded does not shift the demand curve
8Change in DemandDefinition: occurs when something prompts consumers to buy different amounts at every priceChange in demand is also called a shift in demand because it shifts the position of the demand curve
9Change in Demand Cont.Example: high unemployment rate can cause consumers to buy different quantities of goods/services
106 factors can cause a change in demand 1. Income: as income increases/decreases it affects a person’s ability to purchase goods and servicesChanges in income also affect the market demand curveIf most consumers’ incomes in a market go up, total demand will increase
11Increased Income Affects 2 Types of Goods Normal goods: goods that consumers demand more of when their income risesExample: new car
12Inferior GoodsDefinition: goods that consumers demand less of when their income risesExamples: used books, off-brands
136 factors (continued)2. Market size: if the number of consumers increases or decreases it also affects the market sizeExample: significant increase in population in the Southwest
146 factors (continued)3. Consumer tastes: when a good/service is popular consumers demand more of it at all pricesWhen the product becomes less popular, consumers demand less of it
166 factors (continued)5. Substitute goods: goods and services that can be used in place of each otherIf the price of a substitute good drops, people will buy that good and not the original item
176 factors (continued)6. Complementary goods: goods that are used togetherAn increase in the demand for one good increases the demand for the complementary good
18Substitute Goods vs. Complimentary Goods 1. List 3 substitutes for pop.Water, juice, milk, lemonade, tea, coffee, etc.2. List 3 compliments for hamburgers.Fries, lettuce, tomatoes, pickles, etc.
19Questions1. Explain why an increase in income can lead to a decrease in demand.2. Name one thing that can affect market size.
20Questions3. The U.S. government has used many strategies to reduce smoking. It has banned TV ads for cigarettes, run public service messages about the health risks of smoking, and has imposed high taxes on cigarettes. Which factors that affect demand was the government trying to influence?
21Questions4. Do you think changes in consumer taste are often initiated by the consumers themselves or by manufacturers and advertisers? Explain your answer using at least one real-life example.
22Questions5. A popular band has released their latest CD and has been given a clothing endorsement. Explain how will the demand curve of this clothing company be affected.