Economics Chapter 4: Demand. Demand Define: the desire, ability and willingness to buy a product...
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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.](https://reader038.fdocuments.in/reader038/viewer/2022102818/56649e735503460f94b72a86/html5/thumbnails/1.jpg)
EconomicsChapter 4: Demand
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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
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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
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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.
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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
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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.
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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.
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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.
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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
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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!
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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
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Consumer Income• Can change demand…
• Income goes up= buy more goods and services
• Income goes down = buy less goods and services
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Consumer Tastes• Can change demand…
• Advertising, news reports, fashion trends, introduction of a new product.
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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.
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Compliments• Can change demand…
• The use of one increase these use of the other.
• Example: Hot dogs and KetchupComputers and Software
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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.
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Number of Consumers• Can change demand:
• More (or less) people enter the market to buy (or not) causes the demand to shift.
• Baby boomers…
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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
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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.
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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
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You try!
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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
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You try!
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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
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Determining Demand Elasticity
• 1. can the purchased be delayed?
• 2. Are adequate substitutes available?
• Does the purchase use a large portion of your income?