Chapter 4 Demand

Key terms  Page 91  Define all 9 key terms using Cornell style notes to present terms and definitions.  Vocab quiz will be _____________.

Chapter launching Activity  Select two agriculture products One that you expect to increase in popularity in the next few years One that you expect to increase in popularity in the next few years One that you expect to decrease in popularity. One that you expect to decrease in popularity. For each product explain why you expect the change. For each product explain why you expect the change. What causes the desire, or demand, for each product. What causes the desire, or demand, for each product. Students can use the internet to look up financial records. Site source Students can use the internet to look up financial records. Site source Create charts and graphs to support your position on the two products. Create charts and graphs to support your position on the two products.

 Transparency 10  Demand video clip

Demand  The desire, ability, and willingness to buy a product.  Microeconomic concept  Is essential to answer what, how, and for who questions.  Involves two variables- the price and quantity of a specific product at a given point in time.

Demand Curve  

Demand Schedule  Is a collection of data that covers price and quantity at each given price.

Demand Curve  Shows the various quantities demanded of a particular product at all prices that might prevail in the markets at a given time.

Figure 2: Increase in Demand

Figure 3: Decrease in Demand

The Law of Demand  There is an inverse relationship between price of a product and the quantity demanded.

Market Demand Curve  A curve that shows how much of a product all consumers will buy at all possible prices.

Demand and Marginal Utility  As we buy more of an item, we get less satisfaction from each additional purchase.  Diminishing marginal utility: decrease in satisfaction or usefulness from having one or more unit of the same product.

Factors Affecting Demand  Change in Quantity demanded. Only a change in price can cause a change in quantity demanded. Only a change in price can cause a change in quantity demanded. Income effect: price change alters consumers real income. Income effect: price change alters consumers real income. Substitution effect: replacing a more costly product with a cheaper product. Substitution effect: replacing a more costly product with a cheaper product.

Determinates of Demand DeterminateExample Effect on Demand price Falling price increase income Gas price decreases so more money to spend on other items. increase substitution Hay prices high substitute with cubes Substitute demand increases

Change in Demand  Consumer income  Consumer taste  Substitutes  Complements  Expectations  Number of consumers

Elasticity of Demand  Elasticity is a general measure of responsiveness- an important cause-and- effect relationship in economics.  How a change to a dependent variable such as quantity demanded, responds to an independent variable, such as price.  When price changes the quantity demanded can change a little or a lot.

 Demand elasticity = consumers reaction  Example: price changes of seasonal fruits and veggies.

Inelastic Demand  Change in price has a very little change in demand.  Example: unlimited resources or items that consumers can only consume so much of the product.

Unit Elastic Demand  Given change in price causes a proportional change in quantity demanded.

Total Expenditure Test  Used to estimate the demand elasticity of a product.  To find total expenditure: Price of product (p) x quantity (q) for any point along demand curve Price of product (p) x quantity (q) for any point along demand curve Example: Example:

Demand Curve  (p)$2 x (q) 3 = 6  (p) $3 x (q) 0 = 0  Demand elasticity would be high.

Results from expenditure test  Elastic =Price drops and demand increases.  Inelastic = Price drops the increase in demand is so small that total expenditure falls  Unit elastic = total expenditures remain unchanged when price decreases.  See page104 figure 4.5

Determinates of Demand Elasticity  Can the purchased delayed?  Are adequate substitutes available?  Does the Purchase use a large portion of income?

Determinates of elasticity Yes=elastic No= inelastic Fresh tomatoes GasolineButter Water/ irrigation water Can the purchased delayed? YesNoYesNo Are adequate substitutes available? YesNoYesNo Does the Purchase use a large portion of income? NoYesNoYes Type of elasticity Elasticinelasticelasticinelastic