Demand

How does Demand Affect Prices? What is Demand? –Obj: Explain the law of demand

Introduction to Demand Demand = desire, willingness & ability to buy good/service Changes over time –Sometimes people are willing to buy more of a product or service at a particular price –At other times, they are less willing to do so

Individual Demand Schedule Table listing quantities of good/service that people are willing to buy at diff. prices

Individual Demand Curve Graph showing amt. of good/service that would be bought at all possible prices in the market

Law of Demand States that quantity demanded and price move in opposite directions. All other variables remaining the same, the higher the price, the less the quantity demanded.

Market Demand Companies have to take into account the total demand of ALL consumers for their product or service

Utility Pleasure, usefulness, or satisfaction you get from using a product

Marginal Utility Extra benefits gained from purchase of a good/service Diminishing marginal utility – extra satisfaction decreases as more of product is consumed Seen in downward slope of Demand Curve

Obj: Describe the factors that cause changes in demand

What Causes Demand to Change?

When Does Demand Change, Cont’d. 1) When the # of consumers changes

Changes in Demand, Cont’d. 2) When consumers’ incomes change

Changes in Demand, Cont’d. 3) When consumers’ tastes change

Changes in Demand, Cont’d. 4) When consumers’ expectations change

Changes in Demand, Cont’d. 5) When there are changes in the price or quality of substitutes (related products) If the price of butter goes sky high, but the price of margarine does not, some people may choose to buy margarine instead of butter When the price of butter goes up, the demand for margarine does too. 50 cents a pound $5 a pound

When Demand Goes Up... People are willing to buy more of an item at any price Demand Curve moves to the right

When Demand Goes Down... People are willing to buy fewer items at all possible prices The Demand Curve moves to the left

Demand Elasticity The law of demand says that when price goes up, the quantity demanded goes down But the decrease is not the same for all products when price goes up Extent to which price changes cause a change in the quantity demanded

Elastic Demand If demand for something is elastic, even a small change in price causes an even bigger change in demand –When car makers make small price cuts on their cars, the number of cars sold goes up greatly –When car makers raise the price of their cars just a little, the number of cars sold decreases a great deal

Demand Elasticity, Cont’d. If there are good substitutes for something, demand tends to be elastic Also, demand is usually elastic when buying the thing can be put off until later – consumers put off buying it in the hope that the price will go down 60 GB for $600 this Christmas

Inelastic Demand Demand is inelastic for some goods and services Even when price goes up drastically, the quantity demanded remains the same –Ex: Heart medication, insulin, turkey at Thanksgiving

Elastic or Inelastic?