1. Simple Concepts of Demand

2.  Demand: amount of a good or service people are willing and able to buy at a given price and during a certain time period

3.  Law of demand: an increase in price will bring a decrease in quantity demanded, while a decrease in price will cause an increase in quantity demanded Law of demand

4.  It all comes down to common sense  If DVDs go from an average of $12 per unit to $24 per unit, the quantity demanded for DVDs will inevitably go down, other things being equal

5.  If there is a big sale on DVDs, and they drop in price to $8 apiece, the quantity demanded would be much greater  It would show through sales figures  A change in price will bring a change in quantity demanded

6.  Relationship between price and quantity  Price: $250 Quantity: 0  $230 1000  $210 2000  $190 3000  $170 4000  $150 5000  $130 6000

7.  As figures in Price go up, figures in Quantity go down  You can graph information and discover the nature of the demand of a certain product

8.  Question: In usual circumstances, your school sells 3000 tickets to its football games at $5 each. Fill out the chart for what you believe the quantity demanded would be as the ticket prices rose or fell

9.  Price in $ Amount Sold  3 _______  4 _______  5 3000  6 _______

10. Change in Price Affect Quantity Demanded  Think of a rubber band  The more elastic it is, the more it can stretch  If a product changes its price, we expect there will be a change in the quantity demanded

11.  The degree of that change is a product’s elasticity

12.  If prices changes only a little, the quantity demanded changes a whole lot  Product would have an elastic demand  This is because people will make the decision not to buy the product if it does not fit in their budgets

13.  On the other hand, there are products that are necessary to our survival- we call these necessities  If you have a pacemaker and had to replace the battery every so often, a slight jump in price would not dissuade you from buying one

14.  Paying a lot for a battery is better than an massive heart attack any day  No matter what happens to price, the quantity demanded will remain rather constant

15.  When price increases or decreases, quantity hardly changes  This would be price inelastic

16.  How inelastic the demand for a certain product is depends greatly upon how much people need or want the product  Utility is the usefulness or satisfaction that people get from a good or service

17.  Coffee in the morning might have a very low utility for you while the thought of a donut gets you giddy  Therefore, donuts would have more utility

18.  One would expect you would have a constant desire for donuts- this is not the case

19.  Imagine the feeling you get when you eat that first one- it’s your favorite- glazed, with a jelly filling  The first one is magic going down, but as you eat the second one, you find that it is not as satisfying.

20.  Subsequently, each one that you gorge loses its appeal more and more  This is known as diminishing marginal utility  Utility you get from pastry to pastry will decrease with each one you eat

21.  When you venture out on your own into the “real world,” what do you suppose you will eat?  Many college students who live on a shoestring budget eat generic goods and inexpensive foods like mac and cheese

22.  They dream of a day when their budgets no longer constrain their diets  Products one buys less of when income rises are called inferior

23.  Income effect on demand also has a flip side  As people make more money, there are some products they tend to buy more often- these are called normal goods

24.  Most students don’t have money for luxurious items like steak and shrimp- but once they graduate and begin collecting a paycheck, their budgets may permit it

25.  List 5 products that have elastic demands and list 5 products that have inelastic demands

26. Demand Curves Move!  Over a period of time, the simple demand curves may shift  In other words, it is possible for sales of DVDs to increase while remaining at a set price of $12 apiece

27.  Maybe the actor/actress is more popular, maybe the average movie buyer has more money to spend  Perhaps the consumers will begin to prefer another medium

28.  We call these factors that change the quantity demanded without a change in price the determinants of demand  There are five determinants of demand

29.  Consumer preferences- in 1987, New Kids on the Block sold tons of merchandise. Tastes have changed in the last decade or so, they sell next to nothing outside of garage sales any more

30.  Market Size: As baby boomers start to reach golden years, the demand for Depends Undergarments will go up- prices can remain the same, but with more senior citizens, the quantity demanded will increase

31.  Income: If the average income of the average family goes down, then we can expect sales in the school bookstore to drop  Students will simply not have the money to spend on sweatshirts and diskettes

32.  Prices of related goods- if the price of Skippy goes up, people will simply buy more Peter Pan or Jif. We call products easily replaced with others substitutes

33.  On the other hand, if the price of all peanut butter goes up by five times, people will buy less  If that happens, Smuckers will no doubt experience a sharp decrease in sales

34.  Peanut butter and jelly are often sold in conjunction with other another- we call them complements

35.  Consumer Security: most adults have a certain amount of anxiety about the future  When people feel good about the future, they tend to spend money

36.  When they feel that they might lose their jobs or that a depression might be coming soon, they will not buy as much  This would decrease the amount of sales a store would have while they never adjusted their price

37.  Question: Considering school cafeteria chicken patties, for each of the five determinants, state one instance for each of the five determinants in which demand would increase or decrease