2 ObjectivesDescribe & illustrate the concept of demand.Explain how demand & utility are related.Explain what causes a change in quantity demandedDescribe the factors that can cause a change in demand.Define & analyze the elasticity of demand for a product.
3 Ch 4 Key Terms demand demand schedule demand curve Law of Demand marginal utilitydiminishing marginal utilitychange in quantity demandedincome effect substitution effectchange in demand substitutescomplements elasticitydemand elasticity elasticinelastic unit elastic
4 Demand is NOT just the desire to have or own a certain product What is demand?Demand is NOT just the desire to have or own a certain productDEMAND is the DESIRE, ABILITY, and WILLINGNESS to BUY a productWhen I want or need something, do I demand it?No, I must buy it.
5 Analyzing DemandA demand schedule is a listing that shows the number demanded at different prices (table form)PriceQuantity Demanded
6 The line is ALWAYS downward sloping A demand curve shows the quantity demanded at each & every possible price that may prevail in the market (line graph form)The line is ALWAYS downward slopingLower quantity will be demanded at higher pricesHigher quantity demanded at lower pricesA change in price reflects movement along the curve (change in quantity demanded)
7 There is an inverse relationship between price & quantity demanded The Law of DemandThere is an inverse relationship between price & quantity demandedIf price increases, demand decreasesIf price decreases, demand increases
8 Demand and Marginal Utility Utility is the amount of usefulness or satisfaction someone gets from the use of a productMarginal utility is the extra satisfaction one gets from getting one more unit of the productDiminishing marginal utility is the decreasing satisfaction as additional units of a product are acquired
10 Change in Quantity Demanded A change in price will cause a change in the quantity demanded, which is represented by movement along the demand curveThis may occur because of 2 reasons:The Income Effect: change in price alters consumers’ real income (prices drop, you have more income to spend)The Substitution Effect: change in the relative price of the product (as compared with prices of other products)Together, they explain why consumers increase consumption when prices drop
11 If a change in demand is NOT caused by a change in PRICE, the entire demand curve will shift = CHANGE IN DEMAND
12 Change in DemandPeople are now willing to buy different amounts of the product at the same pricesEntire demand curve shiftsTo the RIGHT shows an increase in demandTo the LEFT shows a decrease in demandChange in demand results in an entirely new curve
13 Factors that cause a change in demand (other than price): Write at least 3 facts for each.Consumer IncomeConsumer TastesPrices of Related GoodsSubstitute GoodsComplementary GoodsChange in ExpectationsNumber of Consumers
15 Elasticity is an important cause-and-effect relationship in economics Demand elasticity is the extent to which a change in price causes a change in the quantity demandedWill a change in price cause a relatively larger, a relatively smaller, or a proportional change in quantity demanded?
16 Demand is ELASTIC: a change in price causes a relatively larger change in quantity demanded Demand is INELASTIC: a change in price causes a relatively smaller change in quantity demandedDemand is UNIT ELASTIC: a change in price causes a proportional change in quantity demanded
17 What determines demand elasticity? Can the purchase be delayed?Yes: tends to be elasticNo: tends to be inelasticAre adequate substitutes available?Does the purchase use a large portion of income?