1. Section 1 - Demand

2.  Proctor & Gamble’s introduced disposable diapers to the marketplace in 1961. At first parents only used Pampers for special occasions. Today, 95% of American parents use disposable diapers at a cost of about $2,100 a child. Why do you think the change took place gradually?

3. Market – the freely chosen actions between buyers and sellers.  Consumers influence the price of goods and services in our economy. They do this by creating demand. Demand – the amt of goods/services people are able and willing to buy at various prices.  Then those that sell those things decide how much to sell and at what price, we call this supply. Supply – the amt of goods/services producers are able and willing to sell at various prices. Discussion: What are 2 different types of marketplaces you shop at?

4. The basis of all activity in a market economy is the principle of voluntary exchange. Voluntary Exchange – buyers and sellers exercise their economic freedom by working out terms of exchange.  The seller sets a price, if the buyer agrees to that price they will agree to that price by purchasing it.  If the buyer does not agree to the price, they can wait and see if the price goes down and buy it then.

5. Demand is comprised of 3 factors: 1. Desire – do they want the product 2. Ability to pay 3. Willingness to pay Law of Demand – Inverse relationship between quantity demanded and price. - Price goes, demand goes Other than change the price, how can the seller convince the buyer to agree to the price?

6. Utility – the satisfaction a consumer gets from a good or service.  Sellers use advertising to convince buyers that their product will add to their utility.  Based on utility, people decide what and how much to buy and also, how much they are willing to pay. Marginal Utility – an additional amount of satisfaction Law of Diminishing Marginal Utility – the amt of satisfaction will lessen with each additional unit of a product.  Think of eating at a buffet and with each plate of food you get less and less utility.  Plate 1 gives you a ten for utility, plate 2 gives you a 7 because you aren’t as hungry, plate 3 gives you a 4 because you are getting so full it is almost uncomfortable to sit.

7. Substitution effect – when two products offer the same needs, if the price for one of these products rises people will buy the other products because it is cheaper.  Examples: ◦ Coke vs. Pepsi ◦ Nike vs. Under Armour

8.  What are some reasons that people substitute one product for another?  What are some reasons that people continue to buy a product despite its price?