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Who Demand? YOU YOU Demand! Demand!. The obligatory vocabulary. Demand microeconomics demand schedule demand curve Law of Demand market demand curve marginal.

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Presentation on theme: "Who Demand? YOU YOU Demand! Demand!. The obligatory vocabulary. Demand microeconomics demand schedule demand curve Law of Demand market demand curve marginal."— Presentation transcript:

1 Who Demand? YOU YOU Demand! Demand!

2 The obligatory vocabulary. Demand microeconomics demand schedule demand curve Law of Demand market demand curve marginal utility diminishing marginal utility*

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5 How much is that doggie in the window? Demand is a willingness to buy a product at a particular price. WAD = Willingness Ability + Desire *

6 So what does that mean? People sometimes think of demand as the desire to have or to own a certain product. In this sense, anyone who would like to own a swimming pool could be said to “demand” one. In order for demand to be counted in the marketplace, however, desire is not enough; it must coincide with the ability and willingness to pay for it. Only those people with demand—the desire, ability, and willingness to buy a product-can compete with others who have similar demands.*

7 Microeconomics Demand is a microeconomic concept. Microeconomics is the area of economics that deals with behavior and decision making by small units, such as individuals and firms. Microeconomics helps explain how prices are determined and how individual economic decisions are made.*

8 The Law of Demand The law of demand states that other things being equal, as the price of a good increases, the quantity demanded of that good decreases. or The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up. *

9 Demand Curves Demand is the desire, ability, and willingness to buy a product. An individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service. Economists analyze demand by listing prices and desired quantities in a demand schedule (chart). When the demand data is graphed, it forms a demand curve with a downward slope.*

10 How do you measure demand? Lots of market research. Lots of market research. Check out pre- existing conditions. Check out pre- existing conditions. Poll consumers. Poll consumers. Research past trends. Research past trends.*

11 CD’s Lower prices result in more quantities demanded. Lower prices result in more quantities demanded. Higher prices are determined by lower demands. Higher prices are determined by lower demands. *

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13 Now plot that. There’s your demand curve. There’s your demand curve. Price is always the vertical axis. Price is always the vertical axis. Quantity demanded is always the horizontal axis. Quantity demanded is always the horizontal axis. Demand curves slope downwards. Demand curves slope downwards. *

14 A market demand curve illustrates how the quantity that all interested persons (the market) will demand varies depending on the price of a good or service. *

15 So? All of this data gives you a general idea of the desire, willingness, and ability of people to pay. All of this data gives you a general idea of the desire, willingness, and ability of people to pay. Then you have a demand schedule. Then you have a demand schedule. This one is for shoes. This one is for shoes. The demand schedule is a listing that shows the quantity demanded at all prices that might prevail in the market at any given time. The demand schedule is a listing that shows the quantity demanded at all prices that might prevail in the market at any given time. *

16 Law of Demand in action. Day after Thanksgiving Sales (Black Friday) Day after Thanksgiving Sales (Black Friday) “Tax Free Weekends” “Tax Free Weekends” Special days with specials & lower prices increase sales. Special days with specials & lower prices increase sales. That’s because price is an obstacle to buying. That’s because price is an obstacle to buying. *

17 Marginal Utility Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of a product. The principle of diminishing marginal utility states that the satisfaction we gain from buying a product lessens as we buy more of the same product. *

18 Quiz me baby!

19 Section 2 Vocabulary Change in quantity demanded income effect substitution effect change in demand substitutes complements * Don’t ask.

20 Demand changes Occasionally something happens to change people’s willingness and ability to buy. These changes are usually of two types: a change in the quantity demanded, or a change in demand. *

21 Change in quantity demanded. Simply movement along the demand curve. Caused by the Income Effect & Substitution Effect The change in quantity demanded shows a change in the amount of the product purchased when there is a change in price. *

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23 Income Effect The income effect means that as prices drop, consumers are left with extra real income. Hopefully they’ll buy more of the product with the money they save. The change in the amount purchased is the Income Effect. * See, it’s SIMPLE!

24 Substitution Effect The substitution effect means that price can cause consumers to substitute one product with another similar but cheaper item. Happens all the time at convenience stores with Coke and Pepsi products. The substitution effect is the change in quantity demanded because of the relative change in price. *

25 Substitution Effect Also applies to services. Also applies to services. What are some substitutions for an increase in movie ticket prices? What are some substitutions for an increase in movie ticket prices? *

26 Change in Demand Sometimes people are willing to buy different amounts for the same price. Sometimes people are willing to buy different amounts for the same price. This is a Change In Demand. This is a Change In Demand. The entire demand curve shifts now. The entire demand curve shifts now. *

27 Notice how they are now willing to buy more at each and every price. Notice how they are now willing to buy more at each and every price. Change can increase (shift right) or decrease (shift left). Change can increase (shift right) or decrease (shift left). *

28 So what causes a change? Tastes Tastes (advertising) Income a change in Income Market the number of buyers in the Market changes size Expectations consumer Expectations Related product price change in a Related product (either because it is a substitute or complement – think butter & margarine, film & cameras) *

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30 How about a quiz? Tough. You’re taking one anyway! How about a quiz? Tough. You’re taking one anyway! *

31 Section 3 - Elasticity of Demand Main Idea: Main Idea: Consumers react differently to price changes depending on whether the good is a necessity or a luxury. *

32 Section 3 Vocabulary Elasticity demand elasticity Elastic inelastic unit elastic *

33 Demand Elasticity Tries to answer the question of how changes in price change quantities purchased. Tries to answer the question of how changes in price change quantities purchased. Elasticity measures how sensitive consumers are to price changes. *

34 2 Types of Elasticity Elastic Elastic Inelastic Inelastic * This is Joe. He’s more elastic.

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36 Elastic Demand Demand is elastic when a change in price causes a large change in demand. If milk drops down to $1 a gallon the demand will spike. *

37 Inelastic Demand Demand is inelastic when a change in price causes a small change in demand. *

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39 Unit elasticity Unit elasticity means that any change in price is matched by an equal relative change in quantity. Unit elasticity means that any change in price is matched by an equal relative change in quantity. In other words the revenue doesn’t change when the price does. In other words the revenue doesn’t change when the price does. Don’t worry about it. Don’t worry about it.*

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