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Chapter 4: Demand

Chapter 4: Demand. 4.1 The Demand Curve 4.2 Elasticity of Demand 4.3 Changes in Demand. 4.1 The Demand Curve. Explains the Law of Demand Interpret a demand schedule and a demand curve. Law of Demand.

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Chapter 4: Demand

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  1. Chapter 4: Demand 4.1 The Demand Curve 4.2 Elasticity of Demand 4.3 Changes in Demand

  2. 4.1 The Demand Curve Explains the Law of Demand Interpret a demand schedule and a demand curve.

  3. Law of Demand Demand- A relation showing the quantities of a good that consumers are willing and able to buy at various prices per period, other things constant. EX- Pizza. If pizza costs $10 a slice, how many would you eat in a week. If it costs $2 a slice, how many would you eat in a week. Cost is low, demand may be high.

  4. Law of Demand Law of Demand- The quantity of a good demanded per period relates inversely to its price, other things constant. EX- The higher the price, less demand, the lower the price, higher the demand.

  5. Law of Demand Want- A want is something you desire, but not need for survival. You want a Bently with 24’s. Do you NEED this? No. Need- Something you need to survive. You need a car for your job, but you do not NEED a Bently, you want a Bently. Your Pinto will do to get you back and forth.

  6. Law of Demand Substitution Effect- If you are hungry, you can eat many things to satisfy your hunger. You may have a choice of Pizza, Burgers or Hot Dogs. If you like the taste of all of these items. You can choose either of them. But, if the price of Burgers are cheaper than the other items, you may want to eat Burgers because they are cheaper.

  7. Income Effect Money Income- The money you bring home. Income Effect of Price Change- More for your money. EX- Having the ability to buy more if you want, but choosing not to will give you more REAL INCOME.

  8. Diminishing Marginal Utility Marginal Utility- The change in total utility resulting in a one unit change in consumption of a good. EX- You eat one hot dog, but they taste so good, you buy another. But, the more you eat of them, the less you will want to eat them.

  9. Law of Diminishing Marginal Utility Law of Diminishing Marginal Utility- The more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, other things constant. A car a day. If I gave you a car a day, for the first few days you would love it, after a while, you would have too many cars and they would not be as valuable.

  10. L of D.M.U Law of Diminishing Market Utility- Explains why people buy more when the price decreases. Demand Curve- A curve or line showing the quantities of a particular good demanded at various prices during a given time period, others things are constant.

  11. Demand Curve Law of demand- Price and quantity demanded are inversely or negatively related. EX- Pizza- Pizza prices will stay the same long as the ingredient prices don’t go up. If the price of cheese goes up, then you can expect to pay more for the pizza.

  12. Demand vs. Quantity Demand Quantity Demanded- The amount demanded at a particular price. EX- If something is at a lower price, the demand will be higher than if the item is at a higher price.

  13. Individual Demand and Market Demand Individual Demand- The demand of an individual consumer. Market Demand- The sum of the individual demands of all consumers in the market. EX- Different prices determine demand for items by different people.

  14. 4.2 Elasticity of Demand Elasticity of Demand- Measure how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change.

  15. Elasticity and Total Revenue Total Revenue- Price multiplied by the quantity demanded at that price. EX- When prices drop, the business is paid less for an item, which effects the total amount of money they bring in. Profit is what you keep after all expenses are paid. Free and clear.

  16. Availability of Substitutes Substitute- Using one item or product to satisfy your need for another. EX- When Coke prices go up, you may drink Pepsi because it is cheaper. Instead of buying a Honda Civic, you by a Kia Rio. Same MPG, but the Kia is cheaper in price.

  17. 4.3 Changes in Demand Determinations of Demand 1. Consumer Income 2. The price of related goods 3. Number and composition of consumers 4. Consumer Expectations 5. Consumer Tests

  18. Goods Normal Goods- Increases as money income increases. You buy more goods when you make more money. Inferior Good- The need decreases with the less money you take in. You will eat bologna sandwiches instead of roast beef sandwiches when your money gets low.

  19. Goods Complements- When two goods are put together. When the prices drops for one item, it makes it easier to buy another item to go with it. EX- You buy a plane ticket, but because it is so cheap, you have enough to rent a car.

  20. Goods Tastes- Consumer preferences, likes and dislikes in consumption, assumed to be constant along a given demand curve. EX- I love Adidas products, I do not like Nike products. There is not really a difference in the two, but I like one brand over another.

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