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Demand

Demand . Jump Start Chapter 4 section 1 . The Law of Demand states that More will be purchased at low prices than at high ones Less will be purchased at low prices than at high ones Approximately the same amount will be purchased at low prices than at higher prices

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Demand

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  1. Demand

  2. Jump Start Chapter 4 section 1 • The Law of Demand states that • More will be purchased at low prices than at high ones • Less will be purchased at low prices than at high ones • Approximately the same amount will be purchased at low prices than at higher prices • All people have the ability, and willingness to buy • The demand curve is always • Upward sloping • Downward sloping • Level • Irregular • Buying only one instead of two sodas at lunch time describes what concept? • Demand • Consumerism • Marginal utility • Diminishing marginal utility • All of the following must exist for there to be demand EXCEPT: • A desire to buy a product • Producers to sell a product • An ability to buy a product • A willingness to buy a product • Which of the following statements does NOT describe the demand curve? • Prices are listed on the vertical axis • Quantities demanded are listed on the horizontal axis • The demand curve represents the various combinations of process and quantities demanded that could occur in the market • It shows that demand for a product over time rather than at a given point in time

  3. Microeconomics • Area that deals with • Behavior and decision making by small units (individuals and firms) • Collectively- these concepts help explain • How prices are determined • How individual economic decisions are made

  4. What is Demand?

  5. Demand • Desire, ability, and willingness to buy a product • Can compete with others who have similar demands • Microeconomic concept • People and Firms act in best interest to answer • WHAT, HOW, and FOR WHOM

  6. Demand Illustrated: Example • Bicycle Shop • Ask: Where the demand is? • Set up where have a lot of bicycle riders and few shops • Ask? How do you measure demand? • Visit other shops to gauge reactions of consumers • Poll consumers (prices, determine demand) • Study past data • Gives you idea of desire, willingness, and ability for people to pay

  7. A listing that shows various quantities of demanded of a particular product at all prices How much would you be willing and able to purchase over a range of possible prices? Individual Demand Schedule

  8. Demand Curve • Individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service • Increase in demand = curve will shift right • Decrease in demand= curve will shift left

  9. Demand Schedule illustrated in a Demand Curve

  10. The Law of Demand • States that the quantity demanded of a good or service varies according to price • Price goes up = quantity demand goes down • Price goes down = quantity demanded goes up

  11. Foundations for the Law of Demand • Two reasons for calling it a LAW • Inverse relationship between price and quantity demanded • Common sense and simple observation • People do buy more of a product at a LOW price • People buy LESS when the product is at a HIGH price

  12. Market Demand Curve • Demand curve that shows quantities demanded by everyone who is interested in buying the product.

  13. Market Demand Curve

  14. Demand and Marginal Utility • Reminder: Utility – • used to describe the amount of usefulness or satisfaction that someone get from the use of a product • Marginal utility: • the extra usefulness or satisfaction a person gets from acquiring or using one or more unit of a product

  15. Demand and Marginal Utility • Diminishing marginal utility • The extra satisfaction we get from using additional quantities of the product begins to diminish • Not willing to pay as much for 2nd, 3rd, or 4th as we did the first • Why Demand curve is DOWNWARD sloping • Marginal utility < the price = STOP buying

  16. Microeconomics Demand curve Demand Marginal utility Diminishing marginal utility Graph showing the quantity demanded at each and every price at a given time The decrease in satisfaction or usefulness received from each additional unit of a product The desire, ability, and willingness to buy a product Area of economics that deals with behavior and decision making of small units The extra usefulness or satisfaction a person gets from acquiring or using one more unit of product Chapter 4 Section 1 Vocabulary

  17. Jump Start Chapter 4 section 1 • The Law of Demand states that • More will be purchased at low prices than at high ones • Less will be purchased at low prices than at high ones • Approximately the same amount will be purchased at low prices than at higher prices • All people have the ability, and willingness to buy • The demand curve is always • Upward sloping • Downward sloping • Level • Irregular • Buying only one instead of two sodas at lunch time describes what concept? • Demand • Consumerism • Marginal utility • Diminishing marginal utility • All of the following must exist for there to be demand EXCEPT: • A desire to buy a product • Producers to sell a product • An ability to buy a product • A willingness to buy a product • Which of the following statements does NOT describe the demand curve? • Prices are listed on the vertical axis • Quantities demanded are listed on the horizontal axis • The demand curve represents the various combinations of process and quantities demanded that could occur in the market • It shows that demand for a product over time rather than at a given point in time

  18. Factors Affecting Demand

  19. Jump Start Chapter 4 section 2 • Which of the following would cause a change in quantity demanded for a product? • Changing consumer taste • Increasing consumer income • Decreasing the price of the product • Changing prices of related products • How does the demand curve respond to an increase in demand? • The curve shifts left • The curve shifts right • There is movement along the curve • There is no change in the curve • All of the following would cause a change in demand of a product EXCEPT? • A decrease in consumer income • The substitution effect • Changing consumer taste • An increase in the price of related products • All of the following are examples of complements EXCEPT: • Butter and margarine • Flashlights and batteries • Peanut butter and jelly • Cameras and film • A change in the number of consumers can cause • The demand curve to shift • A substitution effect • The market demand curve to shift • Prices to fall

  20. Change in Quantity Demanded • Change in the amount of a product purchased when there is a change in price • Income Effect • As prices drop, consumers are left with extra real income • Substitution Effect • Price can cause consumers to substitute one product with another similar cheaper item

  21. Change in Quantity Demanded When there is a change in quantity demanded the change appears along the curve

  22. Change in Demand • People buy different amounts of the product at the same prices • Change in demand results in a new curve • Right = increase • Left = decrease • Why Change? • Income, taste, the price of a related good, expectations, and the number of consumers

  23. Change in Demand

  24. Changes Happen • Income: • Up = afford to buy more goods and services • Demand curve shifts to right • Down = cause them to buy less of the good at each and every price • Demand curve shifts to the left • Taste • Advertising, news reports, fashion trends, the introduction of new products, changes in seasons

  25. Substitutes: Competing products that can be used in place of one another An increase in the price of one increases the demand for the other Ex: Butter and Margarine Complements: Products that increase the value of other products An increase in the price of one reduces the demand for both An increase in the use of one will increase the use of the other Ex: film and camera Changes Happen

  26. Changes Happen • Expectations • Way you think about the future • New technologies of tomorrow • Number of Consumers • Increase in number of consumers causes the demand curve to shift • Decrease = shift in demand curve • Also shifts the market demand curve to the left = decline in market demand when anyone leaves the market

  27. People buy different amounts at the same price Shows a move from one curve to the other Affected by price Move along the same curve Change in Demand v. Quantity Demanded

  28. Change in quantity demanded Income effect Substitution effect Substitutes Complements Change in quantity demanded due to change in price that alters a consumers real income Illustrated by movement along the demand curve Products that tend to be used together A change in quantity demanded due to change in the relative price of a product Products that can be used in place of other products Chapter 4 section 2 Vocabulary

  29. Jump Start Chapter 4 section 2 • Which of the following would cause a change in quantity demanded for a product? • Changing consumer taste • Increasing consumer income • Decreasing the price of the product • Changing prices of related products • How does the demand curve respond to an increase in demand? • The curve shifts left • The curve shifts right • There is movement along the curve • There is no change in the curve • All of the following would cause a change in demand of a product EXCEPT? • A decrease in consumer income • The substitution effect • Changing consumer taste • An increase in the price of related products • All of the following are examples of complements EXCEPT: • Butter and margarine • Flashlights and batteries • Peanut butter and jelly • Cameras and film • A change in the number of consumers can cause • The demand curve to shift • A substitution effect • The market demand curve to shift • Prices to fall

  30. Elasticity of Demand

  31. Jump Start Chapter 4 section 3 • Total expenditures are determined by • multiplying the price of a product by the quantity demanded • measuring the elasticity of a product • dividing the price of the product by demand • dividing the demand doe the product by its price • The relationship between the change in price and total expenditures for an elastic demand curve is • Variable • Unit elastic • Inverse • Direct • All of the following are determinants of demand elasticity EXCEPT: • Whether the purchase of the product can be delayed • Whether there are adequate substitutes for the product • Whether the purchase of the product requires a large portion of income • Whether the product has utility • A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk? • Elastic • Inelastic • Unit elastic • Demand elastic • All of the following products have relatively inelastic demand EXCEPT: • A physician’s services • Tobacco products • Stereo equipment • Prescription drugs

  32. Demand Elasticity • Elasticity: measure how sensitive consumers are to price change • Demand Elasticity: the extent to which change in price causes a change in quantity change • Because some goods and services are affected by price more than others, we classify demand as either elastic or inelastic.

  33. Elastic Small price changes can make big changes in demand Amount bought will go up when price goes down You can wait to buy Inelastic Price changes don’t affect demand Lower price will NOT affect the amount bought You can’t wait to buy Demand Elasticity

  34. Demand Elasticity • Unit elastic: when a change in price cause a proportional change in demand • Percent change in quantity approx. = percent in price • i.e.: 5% drop in price approx. = 5% increase in quantity demanded

  35. The Total Expenditures Test • TET: the amount that consumers spend on a product at a particular price

  36. Demand is elastic if you answer YES to the following questions: • Can the purchase be delayed? • Yes = elastic • No = inelastic • Are adequate substitutes available? • Yes = elastic • No = inelastic • Does the purchase use a large portion of your income? • Yes = elastic (Ex: car) • No = inelastic (Ex: salt)

  37. Elasticity Demand elasticity Elastic Unit elastic Inelastic The extent to which a change in price causes a change in the quantity demanded Describes demand when a given change in price causes a relatively smaller change in the quantity demanded Describes demand when a given change in price causes a proportional change in the quantity demanded A measure of responsiveness that shows how a dependent variable such as quantity responds to an independent variable such as price Describes demand when a given change in price causes a relatively larger change in the quantity demanded Vocabulary Chapter 4 section 3

  38. Jump Start Chapter 4 section 3 • Total expenditures are determined by • multiplying the price of a product by the quantity demanded • measuring the elasticity of a product • dividing the price of the product by demand • dividing the demand doe the product by its price • The relationship between the change in price and total expenditures for an elastic demand curve is • Variable • Unit elastic • Inverse • Direct • All of the following are determinants of demand elasticity EXCEPT: • Whether the purchase of the product can be delayed • Whether there are adequate substitutes for the product • Whether the purchase of the product requires a large portion of income • Whether the product has utility • A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk? • Elastic • Inelastic • Unit elastic • Demand elastic • All of the following products have relatively inelastic demand EXCEPT: • A physician’s services • Tobacco products • Stereo equipment • Prescription drugs

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