Unit 2: Demand

Connection to Circular Flow Model Do individuals supply or demand? Do business supply or demand? Who demands in the product market? Who supplies in the product market?

I am willing to sell several in AP Economics. How much will you pay? Price Quantity Demanded Demand Schedule $1,000 $500 $200 $50 $5 $1

DEMAND What is DEMAND? Demand is the quantities that a person or market is ready, willing and able to buy. (Ex. Bill Gates is able to purchase a Ferrari, but if he is NOT willing to buy one， Then he has NO demand for one) What is the Law of Demand? All else being equal, quantity demanded of a good rises, as the price decreases.

LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… There is an INVERSE relationship between PRICE and QUANTITY DEMANDED As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls Quantity Demanded Price

Demand Schedule for CDs at School Demand worksheet Demand Schedule for CDs at School Quantity Demanded (monthly) Price (dollars) 300 250 200 150 100 50 5 10 15 20 25 30 If the price of CDs is $10, how many will people buy? _______ If the price of CDs is $20, how many will people buy? _______ If the quantity of CDs sold is 200, what is the price? _____ If the quantity of CDs sold is 100, what is the price? ______ 250 150 $15 $25

Demand Schedule for Apples at School Demand worksheet How many apples will students buy at 30 cents? How many apples will students buy at 80 cents? What effect does the price seem to have on the quantity of CDs and apples sold? Calculate total revenue (P X Q): If the price of apples is 30 cents, If 100 apples are sold, Demand Schedule for Apples at School Quantity Demanded (weekly) Price (cents) 400 350 250 150 100 50 10 20 30 80 250 100 $75 $80

Example of Supply Supply Schedule You own an scrub brush and you are willing to clean toilets. How many toilets will you clean at these prices? Price per toilet clean Quantity Supplied Supply Schedule $1 $5 $20 $50 $100 $1000 9

Supply What is SUPPLY? What is the Law of Supply? Supply is the quantities of a good that sellers or firms are willing and able to produce and sell (now). What is the Law of Supply? All else being equal, quantity supplied of a good rises, as the price increases. Why? Because, at higher prices profit seeking firms have an incentive to produce more.

Why does the Law of Demand occur? The law of demand is the result of three separate behavior patterns that overlap: The Substitution effect The Income effect The Law of Diminishing Marginal Utility We will define and explain each…

Why does the Law of Demand occur? 1. The Substitution Effect If the price goes up for a product, consumer buy less of that product and more of another substitute product, and vice versa.

Why does the Law of Demand occur? 2. The Income Effect If the price goes down for a product, the purchasing power increases for consumers  allowing them to purchase more.

Why does the Law of Demand occur? We buy goods because we get utility from them The law of diminishing marginal utility states that as you consume more units of any same good, the additional satisfaction from each additional unit will eventually start to decrease In other words, the more you buy of any good the less satisfaction you get from each new unit. Discussion Questions: How does it relate to the Law of Demand? How does this affect the pricing of businesses?

Can you see the Law of Diminishing Marginal Utility in Disneyland’s pricing strategy? Change N/A $54 $33 $15 $10 $5