Topic 3 Demand, Supply, & Prices 1/13/2019 Footer Text
$0.79 $3.00 How many would you buy? 1/13/2019 Footer Text
Demand Demand: Desire to own something & the ability to pay for it Law of Demand: when a good’s price is lower, consumers will buy more of it When the price is higher, consumers will buy less “On this law is built almost the whole edifice of economics.” – Encyclopedia of Economics 1/13/2019 Footer Text
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2 different ways a consumer can change his or her spending patterns Substitution Effect Income Effect 1/13/2019 Footer Text
2 different ways a consumer can change his or her spending patterns Substitution Effect: A consumer reacts to a rise in the price of one good by consuming less of that good & more of a substitute good $20 1/13/2019 Footer Text
Substitute Effect $5 $3 $20 1/13/2019 Footer Text
Consumption = what you buy, not how much $ you spend Income Effect Rising prices make us feel poorer ( falling prices make us feel richer) Income Effect: The change in consumption that results when a price increase causes real income to decline Consumption = what you buy, not how much $ you spend 1/13/2019 Footer Text
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Demand Schedule Demand Schedule: a table that lists the quantity of a good that a person will purchase at various prices in a market Market Demand Schedule: shows the quantities demanded at various prices by all consumers in the market 1/13/2019 Footer Text
Demand Graph Plotting the numbers from the demand schedule on a graph = Demand Curve Price low to high 1/13/2019 Footer Text Quantity demanded low to high
In your notes graph both demand schedules below: 1/13/2019 Footer Text
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Shifts in Demand (3.2) Increases or decreases in demand are not always due to price Ceteris paribus Latin, “all other things held constant” Demand curve is only accurate if no other changes other than price could affect the consumers decision 1/13/2019 Footer Text
Change in quantity demanded Shifts in Demand (3.2) When we drop ceteris paribus & let other factors change, we no longer move along the demand curve, but the entire curve shifts A shift means that at every price, consumers buy a different quantity than before Change in quantity demanded Change in demand 1/13/2019 Footer Text
Non-Price Determinants of Demand Factors that can lead to the shifting of demand curve up or down
Non-Price Determinants of Demand Changes in Income Consumer expectations Population Demographics Consumer tastes & Advertising Price of Related Goods Changes in Income Consumer Expectations Changes in Demographics Changes in Population Size Consumer Tastes and Advertising Prices of Related Goods
Changes in Income Most items we purchase are normal goods Inferior goods Goods that consumers demand more of when their income increases Goods you buy less of or not at all when your income rises
Consumer Expectations If consumers feel that a good’s price will increase soon, they will buy more now If consumers feel that a good’s price will decrease soon, they will buy less or hold off
Changes in Demographics & Population Size Demographics: statistical characteristics of populations (Age, race, gender, occupation, income level)
Consumer Tastes & Advertising
Consumer Tastes & Advertising
Prices of Related Goods Compliments: two goods that are bought and used together Supplements: goods that are used in place of one another