Demand Section 1

I want I want I want What is demand? It is the desire, ability and willingness to buy a product It is a microeconomic concept, which means: ◦The part of economics that deals with behavior and decisions making by SMALL units, such as individuals ◦It helps to explain how prices are determined and decisions are made

So why should I know before? As consumers we are smarter when we research As investors we are also smarter when we research It is essential to understand how a market economy works ◦To know what is popular and not so much ◦What people are charging ◦Is there a need for the product, etc. ◦It is important for sound business planning

So you start a business, what do you need to find out about? Where is the demand!!!! The more demand the better You will not start a ski shop in Hawaii

Its time to graph!!! A demand schedule, is a listing that shows various quantities demanded of a particular product at all possible prices that might prevail in a market at any time Most people would buy more of something as the price gets lower Draw One

The Curve Demand curve, is the demand schedule shown graphically as a downward sloping line It is a graph showing the quantity demanded at each and every price It is represented as DD The price is the Y or vertical side of the graph The demand for the product is the X or horizontal side

Stock Terms Economize, is scaling down to save money Risk, a situation in which something is not certain but probabilities can be estimated Savings, the dollars that become available for investors to use when others save Stock market, the place where people buy and sell ownership of corporations

demand Section 1.2

Law of demand States that the quantity of a good or service varies inversely to price So, when price goes up, demand goes down When price goes down, demand goes up Price is an obstacle because it discourages people from buying or doing something High prices are an obstacle

Market Demand Curve This is a curve that shows the quantities demanded by everyone who is interested in purchasing the product For our purposes in this class the market will be small Popularity of a product is based on utility, or useful or satisfaction that someone gets from using the product

Change in Usefulness Marginal utility, is the changing satisfaction a person gets from using a product After a while it changes and is different for everyone Diminishing marginal utility, the extra satisfaction someone gets from the product starts to diminish or go away We are not likely to purchase some things for a 2 nd, 3 rd or 4 th time

Section 2

Types of demand changes Change in quantity demanded is a movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price When the price of something goes up you buy less of it because you feel poorer This is called the income effect, there is a change in quantity demanded because of a change in price that alters consumers’ income

So what is the next option? Well, many people may buy a Bon Jovi CD or song instead of a concert ticket because they can afford that This is called the substitution effect, people substitute a lower priced item for another for instance generic name brands

Second type of change Change in demand causes a shift in the demand curve because people are now willing to buy different amounts of the product at the same price Draw IT Why the change? Depends, sometimes a change in consumers tastes’, income, price of related goods, expectations and number of consumers The more demanded the shift to the right, less shift to the left

What affects the way we purchase? Advertising Trends New products Changes in season For example: healthier lifestyle, typewriter versus computer, fuel efficient cars, baseball season

Substitutes and Compliments Substitutes are things that can be used in place of each other For example, butter versus margarine Compliments are used with each other. The use of one increases the use of the other For example, computer software

Changes in Expectations Bad weather? Terrorist attacks?

Section 3 Let’s Graph Some More

What is Cause and Effect? When dealing with prices and consumers we want to know what would happen if something changed What was the cause or the effect

Fat Pants Sometimes demand is referred to as being elastic It means a change in price causes a change in the quantity demanded When demand is elastic you can see a relatively large change in demand Ex. Fresh veggies

Inelasticy Inelastic means a given change in price causes relatively small changes in demand Ex. Salt, if the price is cut in half people are not going to run out and purchase large amounts of salt and vice versa Other examples, doctors, tobacco, gas, alcohol

How do we determine a products elasticity? 1. urgency or need- can the purchase be delayed Example would be insulin 2. adequate substitutes available- if yes the consumer can switch back and forth when prices change 3. does the purchase use large amounts of money? Demand for salt is inelastic b/c a container is less than a $,a car would be different