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Demand

CHAPTER 3. Demand. SECTION 1: Nature of Demand SECTION 2: Changes in Demand SECTION 3: Elasticity of Demand. SECTION 1. Nature of Demand. Objectives:. How does demand differ from the quantity demanded? What does the law of demand state?

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Demand

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  1. CHAPTER 3 Demand SECTION 1: Nature of Demand SECTION 2: Changes in Demand SECTION 3: Elasticity of Demand

  2. SECTION 1 Nature of Demand Objectives: • How does demand differ from the quantity demanded? • What does the law of demand state? • What do demand schedules and demand curves illustrate?

  3. SECTION 1 Nature of Demand Difference between demand and the quantity demanded: • demand—amount of a good or service that a consumer is willing and able to buy at various prices during a given period of time. • quantity demanded—amount of good or service that a consumer is willing and able to buy at each particular price during a given period of time. • Notice, that in both definitions- you must be willing and able to buy.

  4. SECTION 1 Nature of Demand Law of demand: • As Price goes up, Quantity Demanded goes down. P Qd

  5. Income Effect • Change in purchasing power because of a change in price • 1 chocolate bar-$1.00 • On sale for $.50

  6. Substitution Effect • Substitute a similar lower priced product for one that is more expensive. • Hershey bars cost $7.00 a piece. What are you going to do? • If Nestle chocolate bars were free, would you demand 1,000,000,000 of them?

  7. Diminishing Marginal Utility • As more units of a product are consumed, the satisfaction received from each additional unit declines. • This is why demand for a product is not limitless.

  8. SECTION 1 Nature of Demand What demand schedules illustrate: • Demand schedules show in table format: the quantity of products consumers are willing and able to buy at a series of possible prices

  9. What demand curves illustrate: • Demand curves show in graph format the data listed in demand schedules

  10. Creating Demand Charts • Draw the appropriate Demand Curve for each Demand Schedule. • At which price does the seller receive the highest Total Revenue?

  11. 1. Draw the appropriate Demand Curve for each Demand Schedule.2. At which price does the seller receive the highest Total Revenue? #1 Demand for gasoline in one week period. Quantity in gallons Price Q-Demanded 4.00 5000 gal 3.95 10000 gal 3.90 13000 gal 3.85 26000 gal 3.80 27000 gal 3.75 28000 gal

  12. 4.00 3.90 3.80 3.75 Pr ice D1 5,000 10,000 15,000 20,000 25,000 30,000 Quantity

  13. #2 Demand for Pepsi sold at Quick Stop in one day. Quantity in cups of Pepsi. Price Q-Demanded 1.75 20 1.70 25 1.65 45 1.60 55 1.55 70 1.50 75

  14. 1.75 1.65 1.55 Pr ice D1 20 25 30 40 45 50 60 65 70 75 80 85 Quantity

  15. #3 Demand for music CDs sold in one year. Price Q-Demanded $25.00 10000 $23.00 12000 $20.00 15000 $18.00 25000 $15.00 27000 $10.00 30000

  16. 25.00 10.00 Pr ice D1 10,000 30,000 Quantity

  17. #4 Demand for flip-flops at the local Target store in June. Price Q-Demanded $15.00 180 $13.00 200 $11.00 300 $9.00 400 $7.00 850 $5.00 1000

  18. 15.00 5.00 Pr ice D1 180 1,000 Quantity

  19. P Qd • This is the law of demand • Shown as movement along the Demand Curve. • This is caused only by change in price.

  20. What a Change in Qd Looks Like: 3.00 2.00 1.00 Pr ice 2000 4000 6000 8000 10000 12000 14000 Quantity

  21. SECTION 2 Changes in Demand When a product’s demand shifts, different quantities of a product are demanded at each and every price.

  22. Pr ice D2 D1 Quantity

  23. SECTION 2 Changes in Demand Determinants of product demand shifts: • consumer tastes and preferences • market size • income • consumer expectations • prices of related goods • Substitute • Complementary

  24. SECTION 2 Changes in Demand Difference between substitute goods and complementary goods: • substitute goods—used to replace the purchase of similar goods when prices increase • complementary goods—commonly used with other goods

  25. Headlines: • For each Headline: • Determine what direction the demand curve will move. • Determine which determinant of demand is making the curve to move. • Draw the graph.

  26. Product: Hot Dogs • Price of Hot Dog Buns Sky Rocket because Wheat Producers go on strike!!!! Direction? _____________ Determinant? _____________ Draw Graph: To the Left Prices of Related Goods- Complementary

  27. Pr ice D1 D2 Quantity

  28. Product: Hershey Chocolate • Hershey Bars: Part of a Healthy Diet! Shift?________ Det._________ Graph:

  29. Product: Apple iPod • Amid Strong Sales Apple Doubles Prices of all iPods.

  30. Product: Wal-Mart Stock • Wal-Mart Expected to have Best 4th Quarter Earnings in 10 Years. Shift?________ Det._________ Graph:

  31. Product: Televisions • Study Shows U.S. Citizens Making 75% More Than 10 Years Ago.

  32. Product: Come up with your own • Headline: Come up with your own. • Trade with the person in-front of/behind you.

  33. SECTION 3 Elasticity ofDemand Objectives: • What is demand elasticity? • What is the difference between elastic and inelastic demand? • How is demand elasticity measured?

  34. SECTION 3 Elasticity ofDemand Demand elasticity reflects the extent to which changes in a product’s price affect the quantity demanded by consumers.

  35. SECTION 3 Elasticity ofDemand Difference between elastic and inelastic demand: • elastic demand—when a small change in a product’s price results in a significant change in the quantity demanded

  36. Elastic Demand Curve Pr ice P1 Small change in Price P2 Q1 Q2 Large change in Qd Quantity

  37. Difference between elastic and inelastic demand: • inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded

  38. Inelastic Demand Curve P1 Big Change in Price P2 Q1 Q2 Small Change in Qd

  39. CHAPTER 3 Wrap-Up 1. State the law of demand in your own words. Be sure to include how the income effect, the substitution effect, and diminishing marginal utility relate to the law of demand. 2. What causes movement along a demand curve—in other words, a change in the quantity demanded? How does this movement differ from a shift in demand?

  40. CHAPTER 3 Wrap-Up 3. What is the difference between a complementary good and a substitute good? Give an example of each kind of good for each of these products: ice cream, baseball game tickets, pencils. 4. Why is determining demand elasticity important to business owners? How can business owners measure demand elasticity?

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