Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product...

26
Economics Chapter 4: Demand

Transcript of Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product...

Page 1: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

EconomicsChapter 4: Demand

Page 2: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Demand• Define: the desire, ability and

willingness to buy a product

• Microeconomics: area of economics that deals with behavior and decision making by mall units, such as individuals and firms• Explains how prices are determined• How individual economic decisions

are made

Page 3: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

The Individual Demand Schedule/ Curve

• Schedule: Listing that shows the various quantities demanded of a particular product at all prices.

• Curve: graph showing the quantity demanded at each and every price that might prevail in the market

• **Willing to buy more at lower prices.

• Pg. 90

Page 4: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.
Page 5: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Law of Demand• The quantity demanded of a

good or service varies inversely with its price.

• Price goes up- quantity demanded goes down.

• Price goes down- quantity demanded goes up.

Page 6: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Market Demand Curve• Demand curve that shows the

quantities demanded by everyone interested in purchasing the product.

• Sum of all individual demand curves in the market. (also downward slopping)

• Page 92

Page 7: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Demand and Marginal Utility

• Utility- the amount of usefulness or satisfaction that someone gets from the use of a product.

• Marginal utility- the extra usefulness or satisfaction a person gets from acquiring or using ONE MORE UNIT of a product.

Page 8: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Diminishing Marginal Utility

• The extra satisfaction we get from using an additional quantity of a product begins to diminish. • We are not as willing to pay as much

for the 2, 3,4 and so on as we did for the first.

• This is why our demand curve is downward sloping.

• When you get to the point where the marginal utility is less than the price, you stop buying.

Page 9: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Change in Quantity Demanded

• Movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price.

Page 10: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Income Effect• Change in quantity demanded because of a

change in price that alters consumer’s real income.

• Gas = $3.50/gal• You use= 10gal/week• $3.50 x 10 = $35.00

• Next week…• Gas = 3.25/gal• $3.25 x 10 = $32.50

Extra level of income to spend: $2.50

Page 11: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Substitution Effect• Change in the relative price of a product

causes a change in the quantity demanded.

• Ex. Lower price will be less expensive than other goods and services make you buy more. • Concert tickets are too expensive for your

budget, you buy a CD. • Movies are too expensive ($10-what?! Really

Swamp Fox?), rent from Red Box= $1!

Page 12: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Change in Demand• Cause people to buy different

amounts of the products at the same price.

• Entire demand curve shifts:• Right= increase in demand• Left= decrease in demand

Page 13: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Consumer Income• Can change demand…

• Income goes up= buy more goods and services

• Income goes down = buy less goods and services

Page 14: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Consumer Tastes• Can change demand…

• Advertising, news reports, fashion trends, introduction of a new product.

Page 15: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Substitutes• Can change demand…

• Change in price of a related product

• Ex. Rise in the price of butter causes and increase in demand for margarine.

Page 16: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Compliments• Can change demand…

• The use of one increase these use of the other.

• Example: Hot dogs and KetchupComputers and Software

Page 17: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Changes in expectations:

• Can change demand…

• The way people think about the future.

• Ex. Weather reports a bad year for crops is ahead. You may stock up on canned goods.

Hurricane forecast = high demand for batteries, water, canned foods, generators etc.

Page 18: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Number of Consumers• Can change demand:

• More (or less) people enter the market to buy (or not) causes the demand to shift.

• Baby boomers…

Page 19: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Elasticity of Demand

• Elasticity- a measure of responsiveness that tell us how a dependent variable such as quantity responds to a change in the independent variable such as price

Page 20: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Demand Elasticity• The extent to which a change in

price causes a change in the qauntity demanded.

• Elasticity tells us how sensitive consumers are to these changes.

Page 21: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Elastic Demand• Change in price causes a relatively larger

change in quantity demanded.

• Percentage of change in quantity demanded is relatively larger than the percentage change in price = elastic!

• Example: fresh vegetables• Prices are lower in the summer= high quantity

demanded • Prices are higher in the winter = lower quantity

demanded

Page 22: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

You try!

Page 23: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Inelastic Demand• A given change in the price causes a

relatively smaller change in the quantity demanded.

• Ex. Salt• Can only consume so much small • Such a small portion of income is spent

on it

Page 24: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

You try!

Page 25: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Unit Elastic• A given change in prices causes a

proportional change in quantity demanded.

• Percentage change in quantity demanded roughly equals the percentage change in price

Page 26: Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product Microeconomics: area of economics that deals with behavior.

Determining Demand Elasticity

• 1. can the purchased be delayed?

• 2. Are adequate substitutes available?

• Does the purchase use a large portion of your income?