1. Microeconomics – part of economic theory that deals with behavior and decision making by individual units, i.e. people
Incentive – something that motivates
Demand Curve - Graph showing quantity demanded at each possible price in the market at any given time

2. Demand

3. What is Demand?
Combination of quantities that someone is willing & able to buy over range of possible prices at any given moment

4. In capitalism – people act in their own best interests to answer three basic questions
Understanding demand is key to know how the economy works

5. Calculation of demand comes down to:
Price of good
Quantity available at that point

6. Demand Schedule
Listing showing quantity demanded at all possible prices
Price is an incentive

7. Price goes up – we buy less
Price goes down – we buy more
Income & hunger feeds your desire, willingness, ability to buy

8. Demand Curve
Graph showing quantity demanded at each possible price in the market at any given time 30 25 20 15 10 5 D1

9. Define:
Microeconomics
Incentive
Demand curve
What is demand?
How do people use demand in capitalism?
What does a demand schedule show?
Price _________, we buy more

10. Law of Demand

11. When the price of something increases – the quantity demanded decreases
When the price goes down – quantity demanded goes up
THIS IS COMMON SENSE and is confirmed through SIMPLE OBSERVARTION

12. Market Demand Curve
Shows quantity demanded by everyone interested in purchasing the product

13. What does the Law of Demand say?
What does the market demand curve show?

14. Demand and Marginal Utility

15. Marginal Utility – extra usefulness/additional satisfaction you get from getting/using one more product
Why do we buy something?

16. Diminishing Marginal Utility
Decrease in additional satisfaction/usefulness as additional units of a product are acquired

17. As we consume each additional unit – we are not willing to pay as much for additional
Happens to all of us

18. What is marginal utility?
What is diminishing marginal utility?
Give an example

19. Factors Affecting Demand

20. Change in Quantity Demanded
Movement along demand curve showing that a different quantity is purchased in response to price change

21. Only a change in price can change the quantity demanded
There is a shift along the curve – but the curve does not shift

22. Income Effect
Change in quantity demanded due to change in price that alters consumer’s income
Price of Product A drops – we pay less
We have more $$$ to spend
Can spend on something else OR more of Product A

23. Substitution Effect
Change in quantity demanded due to shift in relative prices
Consumers replace costly item with less expensive
Ice Cream and Cake

24. What is meant by a change in quantity demanded?
Explain the income effect.
Explain the substitution effect.

25. Change in Demand

26. Different amounts of product demanded at every price – causing demand curve to shift
Changes for various reasons

27. Consumer Income The more you make the more likely you are to buy more
DC shifts right

28. Consumer Tastes Always changing Successful advertising
People grow tired of item

29. Substitutes
Competing products that can be used in place of one another
Butter & Margarine

30. Complements Products that increase the use of other products
Computers > software
Peanut butter - - -> Jelly
Ketchup > Mustard

31. Differentiate between consumer income and consumer tastes.
Define substitutes and give and example.
Define complements and give an example.

32. Demand Elasticity
The extent to which a change in price causes a change in the quantity demanded

33. Demand is elastic when a change in price causes a relatively larger change in quantity demanded.
Demand is inelastic when a change in price causes a relatively smaller change in quantity demanded.

34. Examples of Elastic Demand
Gasoline from a specific station
Furniture
Automobiles
Professional Services
Airline tickets
Stocks

35. Examples of Inelastic Demand
Gasoline
Salt
Goods produced by a monopoly
Tap water
Cigarettes
Necessary medical items

36. Elastic Demand P Small price change D Q
Large change in Quantity Demanded

37. Inelastic Demand P Large price change D Q
Small change in Quantity Demanded

39. Demand is unit elastic when a change in price causes a proportional change in quantity demanded.
To measure the elasticity of demand, compare the percentage change in quantity demanded to the percentage change in price.

40. Unit Elastic Demand P Prince Change D Q
Proportionate change in Quantity Demanded

41. Demand is usually inelastic if consumers cannot postpone the purchase of a product.
When acceptable substitutes are available for a product, demand becomes more elastic.

42. Demand for purchases that require a large portion of income is generally more elastic than the demand for purchases that require a smaller amount of income.

43. What is demand elasticity?
Define the three with examples.