DEMAND BY ALANNA SMYTH

DEMAND…..  Means the number of units of a good which consumers are willing to purchase at any given market price at any given time

Demand is displayed on ….  DEMAND SCHEDULES – table showing the demand for a good at any given market price at any given time  DEMAND CURVES – graph showing the demand for a good at any given market price at any given time

DEMAND SCHEDULE  The demand schedule on the right displays the demand for gasoline.  As the price for the gasoline increases, demand decreases.

DEMAND CURVE  The demand curve on the right shows us that as the price increases from 20p to 50p, the quantity demanded decreases from just over 400 to 100.

Utility Marginal Utility  Utility is the amount of benefit or satisfaction derived from the consumption of a good or service.  Marginal utility is the increase in benefit or satisfaction derived from the consumption of an extra unit of the good or service.

 The law states that as a consumer consumes extra units of a good, then at some stage the marginal utility,ie. the increase in benefit or satisfaction derived from the consumption of an extra unit of the good or service, will decrease.

 The law of diminishing marginal utility only applies after the origin  The total utility is not totally used up before the next unit is consumed.  Income doesn’t change  It doesn’t apply to addictive goods or to medicines

An Economic Good An economic good is one which commands a price, ie. a product which people are willing to pay for

Characteristics of an economic good It must give utility: The consumer must get satisfaction or benefit from its consumption It must be transferable: The ownership or the benefit of it must be transferable from the seller to the buyer It must be scarce in relation to the demand for it: would you pay for sand at a sandy beach to build sandcastles?

Assumptions made about Consumers It’s assumed that consumers act rationally. It’s assumed that consumers have limited incomes It is assumed that consumers aim to get their maximum utility from the way they spend their incomes It is assumed that consumers are subject to the Law of Diminishing Marginal Utility.

Law Of Equi-Marginal Utility It states that a consumer will be in *equilibrium when his/her income is spent in such a way that the ratio of marginal utility (MU) to price (P) is the same for all goods which he/she consumes. *Equilibrium means the ideal situation to be in under any given set of circumstances. When consumers are in equilibrium it means that they are getting the maximum possible utility from their income.

Law of Equi-Marginal Utility  MU of good A = MU of good B P of good A P of good B =MU of good C P of good C

Exam Questions  2011 Section B Question1

Give