Chapter 3: Demand Needs and wants

1. Chapter 3: DemandNeeds and wants We don�t distinguish �needs� from �wants� in economics What is �needed� medical care? Medical services are scarce. You (or someone) must give up something to get some. There are substitutes for any scarce good, according to our text. Even insulin for diabetics.

2. Marginal values A marginal unit is the next unit you are considering Whether to have another cup of coffee How to spend the next hour Whether to acquire another diamond (which might be your first)? A marginal value is the value of a marginal unit The water-diamond paradox Paradox resolved by considering marginal unit Marginal values are what matters because we can only decide about future choices past choices cannot be reversed

3. Marginal values Marginal values are what counts: comparing marginal benefit to marginal cost Playing video games versus studying Drinking lattes or drinking coffee Exercise versus relaxing Marginal values Have you already done sufficient studying? Are you tired of plain coffee? Have you already exercised this week?

4. Demand scheduleDemand curve Demand for water: people will buy less if the price rises (p. 49)? As the price rises, substitutes for water become more attractive: Take shorter showers Water the lawn less or replace grass with rocks Wash the car less often Demand schedule, p. 49 Demand curve, p. 50

5. The law of demand When the price of a good rises, the quantity demanded falls When the price of a good falls, the quantity demanded rises Applies to all scarce goods (and services)? We never really know numerical demand schedules like on p. 49 We do know that demand curves always slope down

6. �Demand� versus�Quantity Demanded� �Demand� refers to an entire demand schedule or demand curve �Quantity demanded� refers to a single number at a particular price The law of demand does not say that demand falls when price rises, it says that quantity demanded falls when price rises. A change in �demand� means the whole curve shifts to the left or right A change in �quantity demanded� means a movement along a demand curve

7. Some reasons why demand curves shift More consumers (demanders) means more total demand Shifting consumer tastes and preferences Change in income �normal goods:� we demand more when our income rises �inferior goods:� we demand less when our income rises the classification of goods as �normal� or �inferior� is subjective different for different people different for one person at different times

8. More reasons why demand curves shift Change in the price of a substitute Demand falls when substitutes become cheaper Demand rises when substitutes become more expensive Change in the price of a complementary good (a good that accompanies another good)? Demand rises when complementary goods become cheaper Demand falls when complementary goods become more expensive Change in expected future price of a good When people believe prices are about to rise they are more inclined to buy now, before the price rise

9. Summary: changes that cause demand to rise or fall