ECOGOV: 4.1 UNDERSTANDING DEMAND
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Transcript of ECOGOV: 4.1 UNDERSTANDING DEMAND
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COMPLETE PREP:
4.1 UNDERSTANDING DEMAND
SECTION FOCUS AND KEY TERMS
TURN TO PAGE ?
THEN START READING SECTION
ECONOMICSMR. HOOD28 APRIL 2014
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4.1 UNDERSTANDING DEMAND
ECONOMICSMR. HOOD`S NOTES28 APRIL 2014
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34 SLIDES
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OBJECTIVE 1EXPLAIN THE
LAW OF DEMAND
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DEMAND IS THE
DESIRE FOR SOMETHING
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AND THE ABILITY
TO PAY FOR IT
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THE LAW OF DEMAND:
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WHEN A GOOD`S PRICE IS LOWER, CONSUMERS WILL
BUY MORE
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WHEN A GOOD`S PRICE IS HIGHER,
CONSUMERS WILL BUY LESS
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THE PRICE OF GOODS STRONGLY
INFLUENCE US
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TAKE PIZZA FOR EXAMPLE: WOULD YOU PAY $1
DOLLAR A SLICE?
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WOULD YOU PAY $3 DOLLARS A SLICE?
WOULD YOU PAY $10 DOLLARS A SLICE?
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THE HIGHER THE COST OF PIZZA,
THE LESS LIKELY YOU WILL BUY
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THIS IS THE LAW OF DEMAND
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OBJECTIVE 2UNDERSTAND HOW THE SUBSTITUTION EFFECT AND THE INCOME EFFECT
INFLUENCE DECISIONS
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THE LAW OF DEMAND IS RESULT OF 2
PATTERNS OF BEHAVIOUR
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1 - SUBSTITUTION EFFECT
WHEN COST OF PIZZA IS TOO HIGH…
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PEOPLE LOOK TO CHEAPER ALTERNATIVES
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2 - INCOME EFFECTRAISING PRICES MAKE US FEEL
POORER
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CUT BACK ON PURCHASES,
CAN´T BUY AS MUCH AS USED TO
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FEWER SLICES WITHOUT INCREASING
OTHER PURCHASES
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SPENDING MORE,
BUT CONSUMPTION DOWN
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OBJECTIVE 3CREATE A DEMAND SCHEDULE FOR AN INDIVIDUAL AND A
MARKET
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A DEMAND SCHEDULE LISTS THE QUANTITY OF A
GOOD…
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…THAT A PERSON WILL PURCHASE AT EACH PRICE IN
A MARKET
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1 – INDIVIDUAL DEMAND SCHEDULE
EG. PIZZA $1 PER SLICE, ASHLEY BUYS 4 SLICES
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PIZZA $2 PER SLICE, ASHLEY BUYS 2 SLICES
PIZZA $3 PER SLICE, ASHLEY BUYS 0 SLICES
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2 – MARKET DEMAND SCHEDULE
EG. PIZZA $1 PER SLICE, PEOPLE BUY 250 SLICES
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PIZZA $2 PER SLICE, PEOPLE BUY 150 SLICES
PIZZA $3 PER SLICE, PEOPLE BUY 50 SLICES
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OBJECTIVE 4INTERPRET A DEMAND GRAPH USING DEMAND
SCHEDULES
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DEMAND CURVE IS A GRAPHIC REPRESENTATION OF
DEMAND SCHEDULE
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VERTICAL AXIS LOWEST PRICE AT BOTTOM
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VERTICAL AXIS HIGHEST PRICE AT TOP
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HORIZONTAL AXIS LOWEST DEMAND AT LEFT
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HORIZONTAL AXIS HIGHEST DEMAND AT RIGHT
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CAN BE USED TO PREDICT BUYING
HABITS
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EG. A DEMAND CURVE
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