A Microeconomics Topic DEMAND A Microeconomics Topic

Factors that Determine Demand Desire: Do I want it? Ability: Can I afford it? Willingness: Am I willing to buy it?

Showing Demand Demand Schedule: listing of various quantities of a good demanded at all prices in the market at one time Demand Curve: A graph showing schedule

Law of Demand Quantity of a good demanded varies inversely with its price Higher price = Lower quantity demanded Lower price = Higher quantity demanded

Marginal Utility Margin, marginal always mean CHANGE Utility means usefulness/satisfaction Marginal utility: amount of additional satisfaction you get from each additional unit of a good Law of diminishing marginal utility: As you consume more of something you get less added satisfaction from each unit decreasing demand

Factors Affecting Quantity Demanded Change in QUANTITY demanded- the market has not changed- no new demand curve Change in Price Change in QUANTITY demanded

Change in Quantity Demanded

Factors Affecting Demand Change in DEMAND-the market has changed- NEW demand curve (the demand curve has “shifted”) at ALL prices there will be a NEW quantity demanded Consumer income Consumer tastes Substitutes’ prices Complements’ prices Consumer expectations Number of consumers changes

Change in Demand

Section 3-5 Demand Elasticity Elasticity measures how sensitive consumers are to price changes.  Demand is elastic when a change in price causes a large change in demand.  Demand is inelastic when a change in price causes a small change in demand.  Demand is unit elastic when a change in price causes a proportional change in demand. Click the mouse button or press the Space Bar to display the information.

Section 3-9 The Total Expenditures Test Price times quantity demanded equals total expenditures.  Changes in expenditures depend on the elasticity of a demand curve—if the change in price and expenditures move in opposite directions on the curve, the demand is elastic, if they move in the same direction, the demand is inelastic; if there is no change in expenditures, demand is unit elastic.  Understanding the relationship between elasticity and profits can help producers effectively price their products. Click the mouse button or press the Space Bar to display the information.

Section 3-9 The Total Expenditures Test (cont.)

Section 3-14 Determinants of Demand Elasticity Demand is elastic if the answer to the following questions are “yes”.  Can the purchase be delayed? Some purchases cannot be delayed, regardless of price changes.  Are adequate substitutes available? Price changes can cause consumers to substitute on product for a similar product. Does the purchase use a large portion of income? Demand elasticity can increase when a product commands a large portion of a consumer’s income. Click the mouse button or press the Space Bar to display the information.

Section 3-15 Determinants of Demand Elasticity (cont.)

SUPPLY

Supply The amount of output that producers are willing to bring to market at each and every price Law of Supply: Higher priceHigher quantity supplied; Lower priceLower quantity supplied

A change in quantity supplied is the change in amount offered for sale in response to a change in price. Producers have the freedom, if prices fall too low, to slow or stop production or leave the market completely. If the price rises, the producer can step up production levels.

Changes in Supply Change in supply means at ALL prices there are different quantities supplied Causes of change in supply Change in cost of inputs New technology Producer expectations Government Actions Taxes Regulations Subsidies

A change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market.

Elastic Types