Demand

What is Demand? Chapter 4, Section 1

What is Demand? Demand-the desire, ability, and, willingness to buy/own a product-can compete with others who have similar demands Microeconomics-area of economics that deals with behavior and decision making in small units, such as individuals and firms These concepts help explain how prices are determined and how individual economic decisions are made!

Individual Demand Schedule/Curve Demand Schedule-a listing that shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time Demand Curve-the graphic representation that shows the quantity of a good a person will buy at each different price

Law of Demand Law of Demand-consumers buy more of a good when its prices decreases and less when it increases Price is an obstacle, which discourages consumers from buying. The higher the obstacle, the less of a product they will buy

Market Demand Schedule/Curve Market Demand Schedule-a table that lists the quantity of a good all consumers in a market will buy at each different price Market Demand Curve-shows the quantities demanded by everyone who is interested in purchasing the product

Demand and Marginal Utility Marginal Utility-the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product Diminishing Marginal Utility-the extra satisfaction we get from using additional quantities of the product begins to diminish; because of diminishing satisfaction, we are not willing to pay as much for the 2nd, 3rd, 4th, and so on, as we did the 1st-therefore you are not willing to pay as much Marginal Utility <Price ->Stop buying

Factors Affecting Demand Chapter 4, Section 2

Factors Affecting Demand Occasionally, something happens to change people’s willingness and ability to buy: A change in quantity demanded A change in demand

Quantity vs. Demand Change in quantity demanded-whenever there is a movement along the demand curve symbolizing a change in the price of the product; change from point-to-point; left to show and decrease and right to show and increase Reasoning behind this change?? Income Effect-the change in quantity demanded because of a change in price that alters consumers’ real income Normal good-A good that consumers demand more of when their incomes increase Inferior good-A good that consumers demand less of when their incomes increase Substitution Effect-the change in the quantity demanded because of the change in the relative price of the product

Change in Demand Change in Demand-consumers demand different amounts at every price, causing the demand curve to shift left to show an decrease or to the right to show an increase Reasoning behind this change?? Consumer Income Consumer Tastes Substitutes-goods used in place of another Complements-two goods that are bought and used together Change in Expectations Number of Consumers

Elasticity of Demand Chapter 4, Section 3

Review from Last Class What does the Law of Demand state? What are the three justifications of the Law of Demand? What is the difference between a change in Quantity Demand and a change in Demand? What are the 6 factors the book discusses which change demand?

Elasticity Elasticity-a measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price We know that changes in price will effect the quantity that consumers demand…but the question that still exists is by how much? Large, small, or proportionate? Elasticity allows us to examine how sensitive the quantity consumers demand will be due to the change in price

Elasticity of Demand Demand Elasticity-the extent to which a change in price causes a change in quantity demanded Elastic-When the response by consumers is one that is relatively large; very sensitive to change Inelastic-When the response by consumers is one that is relatively small; not very sensitive to change Unit Elastic-When the response by consumers is one that is proportional; equal to 1

Determinants of Demand Elasticity What makes the demand for a specific good elastic or inelastic? Can the purchase be delayed? Are adequate substitutes available? Does the purchase use a large portion of income?

Activity with Elasticity I will split you up into groups of 3. Each group will be responsible for creating a poster of the 3 basic types of elasticity: elastic, inelastic, and unit elastic. For each type, you will have a title, graph, and explanation of the graph. Under the three graphs you will provide me with the 3 determinants of elasticity: also, explaining each and giving examples for each.

Gasoline from a particular station Gasoline in general Determinants of elasticity Fresh tomatoes, corn, or green beans Table Salt Gasoline from a particular station Gasoline in general Services of medical doctors Insulin Butter Can purchase be delayed? Are adequate substitutes available? Does purchase use a large portion of income? Type of elasticity