1. Demand Chapter 3

2. What is demand? The willingness and ability to purchase a good or service Demand = Willingness and ability to purchase

3. The Law of Demand As a price of a good increases the quantity demanded of the good decreases and vice versa –Quantity Demanded – is there a difference between demand and quantity demanded? »A demand for popcorn »Buying the popcorn 2 bags for 1 dollar is quantity demanded

4. Opposite Directions Why do price and quantity demanded move in opposite directions? –Law of diminishing marginal utility Candy experiment –As you obtain less utility from additional units you will only buy large quantities at low prices

5. Demand Schedule Law of Demand says… –The up / down relationship is inverse relationship –A chart showing the inverse is a demand schedule

6. Demand Curve 3-1 b shows the demand curve –Plotting connected points to show patterns –There are almost always patterns in economics

7. What happens when said curve shifts? Demand curves shifting right or left show more or less demand of a product at price What causes these shifts?

8. Income As income goes up, people have the ability to purchase more of a good –This doesn’t necessarily mean they will Normal Good – income goes up, purchase of that good goes up Inferior Good – income goes up, purchase of that good goes down Neutral Good – income goes up, purchase of that good stays the same

9. Preferences People prefer certain products –Types of video games

10. Prices of Related Goods Substitute Goods –Cars – Coffee / Tea – Video Games Complements –Things that go together Balls / Bats PS2 / Games Cars / Tires

11. Number of Buyers Certain goods are demanded more in certain areas –Surfboards / CA v. SD

12. Change in Demand v. Change in Quantity Demanded A change in demand refers to a shift in the curve Change in quantity demanded = A movement from one point to another point on the same demand curve

13. Responsibilities of Buyers Researching Ethics in paying

14. Section 3 Elasticity of Demand –Relationship between percentage change in in quantity demanded and the percentage change in price % Change in quantity demanded Elasticity of demand = ---------------------------------------------------- % Change in price

15. Demand Elastic demand – when quantity demanded percentage changes more than the price Inelastic demand – when quantity demanded percentage changes less than the price Unit Elastic demand – when quantity demanded and price have similar relationships

16. Determinants of Elasticity The number of substitutes has great effects on elasticity –Heart Medicines –Breads

17. Luxuries v. Necessities Luxury – don’t need it to survive Necessity – Food, medicine… –Which goods are elastic?

18. Percentages of Income Making budgets on any level, percent of income is studied Obvious which goods are more responsive to Relationship to Time –Changing to adapt and adjust over time

19. What does it matter? All versions of elasticity matter, because they relate to total revenue

20. Case 1 A rise in price does not necessarily mean a rise in revenue Elastic demand + Price rise = TR Decrease

21. Case 2 If demand is elastic and price is decreased, revenue will go up –Elastic Demand + Price Decline = TR Increase

22. Case 3 Inelastic demand + Price Rise = TR Increase If demand is inelastic a price rise will lead to a revenue increase

23. Case 4 If demand is inelastic and price declines, total revenue will decrease Inelastic demand + Price decline = TR Decrease

24. Unit Elastic Equal forces in opposite directions No change to total revenue