Basic Economic Concepts Demand Purpose: Identify changes in events that will result in a change in demand. Standard: Benchmark 1.5

Goals Explain utility and the law of diminishing marginal utility. Describe the law of demand. Correctly label and graph a demand curve and shift. Identify an increase and decrease in demand. Identify the determinants of demand and their effect on the shifting of the demand curve.

I. Fundamentals of Consumer Choice 1) Limited Income Forces Choice When more of one good or service is bought, we must buy less of some other good. “Scarcity” of income. 2) Consumer Choice has Purpose Consumers weigh costs and benefits. If the cost is the same, we will buy the higher benefit. If the benefits are the same, we will buy the lower cost.

I. Fundamentals of Consumer Choice 3) Substitute Goods No single good is so precious that some of it will not be given up in exchange for a large enough quantity of another. Consumers can achieve “utility” elsewhere. 4) Consumers use their Knowledge Make decisions based on the knowledge they have. The time and energy spend finding knowledge are costs attributed to the value of the good.

I. Fundamentals of Consumer Choice 5) The Law of Marginal Utility applies: As the rate of consumption increases, the marginal utility gained from consuming additional units of a good will decline. Utility: subjective personal benefits. Explains why we do not spend our entire budget on one good we receive utility from.

II. Demand Demand: Law of Demand: The desire to own something AND ability to pay for it Law of Demand: Consumers will buy more of a good when its price is lower and less when its price is higher

II. Determinants of Demand Changes in Income: Income affects our demand for products Normal Goods Goods that are demanded more when income rises Ex. Cheerios Inferior Goods Goods that are demanded less when income rises Ex. Toasty O’s (generic brand)

II. Determinants of Demand Consumer Expectations: Expectations about the future can impact demand The Office: http://economicsoftheoffice.com/all/?jel=G14

II. Determinants of Demand Changes in Population: An increase in the amount of people leads to higher demand for a given product

II. Determinants of Demand Taste and Preferences: Cannot be totally explained, but demand for products shift depending upon the tastes of the population

II. Determinants of Demand Prices of Related Goods: Demand for one good can be effected by a change in demand for another good. Complimentary Goods Goods generally purchased and consumed together. Ex. Salt and Pepper Substitute Goods Goods used in place of another good. Ex. Oranges and apples The Office: http://economicsoftheoffice.com/all/?jel=D40