1. Chapter 4 Demand  An Introduction to Demand –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.

2. Chapter 4 Demand –Economists analyze demand by listing prices and desired quantities in a demand schedule. When the demand data is graphed, it forms a demand curve with the downward slope. –Graph the following data

3. Graph the following data –PriceQuantity Demanded –$300 –$250 –$201 –$153 –$105 –$58 –Now.. Connect the dots. Check answers.

4. The Law of Demand –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. –A market demand curve illustrates how the quantity will fluctuate based upon the market’s demands and depending on the price of a good or service.

5. Demand and Marginal Utility Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of 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. 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.  Ex; Pizza or a hamburger

6. Complements and Substitutes What causes the shift?  Income -Inferior goods  Consumer Expectations-expect the price to rise, so will the demand, and vise versa  Population  Consumer Taste and Advertising  Complements- goods together  Substitute- goods used in place

7. Elasticity  Elastic Demand- measurement in reaction to change in price elasticity  Inelastic Demand- not sensitive to a change in price (insulin, oil)  Elastic- very sensitive to price (bottled water)  Unitary elastic- demand whose elasticity is exactly = magazines $2-$3; sell half # of copies

8. Elasticity of Demand: Elastic, Inelastic, or Unit-Elastic Percentage change in quantity demanded Percentage change in price = Elastic Demand [greater than 1] Or Inelastic Demand [Less than 1] Or Unit-Elastic Demand [Equal to1]

9. “What’s up what’s up what’s Up with Supply? Law of Supply

10. Supply  What is supply? The amount of goods available  Law of Supply- As the price for a good or service increases so too does the quantity supplied.  Supply Curve  Market Supply Curve Supply Curve Travels UP Supply

11. Elasticity  Elastic- Change in price causes a larger change in quantity supplied (q.s.)- long run  Unit elastic change in price causes a proportional change in q.s.  Inelastic- change in price causes a relatively smaller change in q.s. – ex. Orange growers, because it takes a while for output to change

12. Cost of Production Labor and Output  Marginal product of labor- change in output form hiring one more worker.  Specialization increases output  Increasing marginal returns  Diminishing marginal returns- adding one more worker increases total output, but at a decreasing rate.

13. Changes in Supply examples  Technology  subsidy  Robots have replaced many workers on assembly lines and allowed co. to spend less on salaries  Gov’t protect farmers so that they will be able to grow food

14. Changes in Supply examples  Excise tax  regulation  On cigarettes, alcohol, and high pollutant gas  1970 fed. Gov’t required auto co. to reduce pollution from car exhaust

15. Production Costs Examples  Fixed Costs- Mortgage  Variable Costs- PG & E  Total Costs- All bills per month  Marginal Costs- extra PG & E bill during the summer

16. Happy Econ Day  We are going to operate a card making shop here in C106; I will hire the perfect employees for the job and analyze our output, remember we want to increase our output to gain revenue and follow the law of supply.