Chapter 21 Demand!

An Introduction to Demand (448-449) A. Supply and demand work together to set prices. B. Demand- desire, willingness, ability to buy a good or service. (The amount consumers want) C. The demand curve slopes downward. ***It shows that people are normally willing to buy less of a product at a high price than at a low price. ***

Individual Market vs. Demand A. Market Demand- the total demand of all consumers for a product or service. B. Utility- the pleasure, usefulness, and satisfaction a product gives us. *** A Particular product may have little to no utility to some people***

Say you eat a slice of pizza ***Say you eat a slice of pizza. Because you are most hungry when you eat the 1st slice, this slice gives you the most utility, or satisfaction. As you grow less hungry, each additional slice provides less marginal utility, or less additional satisfaction.*** C. Diminishing Marginal Utility- says our additional satisfaction tends to go down as we consume more units!

Suppose you have watched two movies today ***Suppose you have watched two movies today. What does the principal of diminishing marginal utility predict about your willingness to rent another?*** III. Changes in Demand Income changes also affect demand. $80,000 OR $25,000

B. Consumer’s taste in a product changes B. Consumer’s taste in a product changes.(Advertising influences, “Must Buy”) C. Expectations change demand. (Technology) D. The number of consumers in an area can change demand. (Additional troops to Base, Deployments)

E) Changes in substitutes (Competing products) Substitute Goods- Used in place of one another If price changes for one then demand will change for the other EX. Butter is a substitute for margarine. If price of margarine increases then people will substitute butter for the higher priced margarine.

F) Changes in Complements (Complementary Goods) (Products used together)

Elasticity of Demand A. When prices rise, demand goes down. B. Demand Elasticity- The extent to which a change in price causes a change in quantity demanded.

Elastic Demand: each change in price causes a relatively larger % change in quantity demanded. Items tend to be elastic if: Expensive If attractive substitutes are available

Inelastic Demand- Changes in price have little effect on quantity demanded Inelastic if: No real substitutes available Necessary item

Mini Quiz!!! When prices go up what happens to the demand? When prices go down what happens to the demand? What does the utility of a product mean? Interpret this Demand Chart...What is the quantity of demand at $5???