Demand Chapter 4

Demand Demand – the desire to have a good or service and the ability to pay for it Law of demand – states that when the price of a good or service falls, consumers buy more of it Demand schedule – table that shows how much of a good or service a consumer is willing and able to purchase at each price (see page 100) Market demand schedule – shows quantity demanded by all people at certain prices

Demand Curve Graph that shows how much of a good or service an individual is willing to buy at each price Market demand curve – data in market demand schedule

Activity Work together on market demand schedule for pizza Each person in the group (no more than 3 per group) will fill in how much they are willing to pay for pizza at each given price. Person 1 fills in Day 1; person 2 fills in Day 2, etc. Total number of slices sold at each price will help determine market demand

Vera Wang: Designer in Demand Rad page 104 and answer questions How did Vera Wang respond to consumer demand? How did she create or generate consumer demand?

What Factors Affect Demand? Law of diminishing marginal utility – when marginal benefit from using additional unit of good tends to decline as used. Change in quantity demanded – change in amount consumers will buy, causes change in price Change in demand – occurs when a change in the marketplace changes consumer behavior (unemployment, etc) There are several factors that affect demand

What Factors Affect Demand? Class is broken into 6 groups, each will explain how these factors impact the demand for designer jeans: Group 1 Income Group 2 Consumer Tastes Group 3 Consumer Expectations Group 4 Market Size Group 5 Substitutes Group 6 Complements

Inferior v. Normal goods Normal goods – consumers demand more of these when their income level rises (high price or high quality, expensive goods) Inferior goods – consumers demand less of these when their income rises (discount jeans, cheap food)

Elasticity of Demand Elasticity of demand – how responsive consumers are to price changes Elastic – larger change in quantity demanded and price Inelastic – when change in price leads to small change in quantity demanded Can you think of anything that is INELASTIC?

What impacts elasticity? Substitute goods or services – is there something else that will fulfill need/want? Proportion of income – the amount of your income that goes to pay for something may cause it to be elastic/inelastic. The bigger portion of your income, the more likely you will change habits if price increases. Necessity v. Luxury – is it something you NEED or WANT? Review chart on page 120, what items are “inelastic”?

Total Revenue Test Total revenue – the amount of money a company receives for selling its products. (Price x. Quantity) Total revenue test If revenue increases after the price drops, demand is elastic (seller makes less per unit, but demand increased enough to allow them to make more money) If revenue decreases after the price is lowered, demand is inelastic (seller makes less money because demand didn’t increase enough)