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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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

7. 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)

8. II. Determinants of Demand
Consumer Expectations:
Expectations about the future can impact demand
The Office:

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

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

11. 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: