1. Economics Chapter 4 Demand

2. Demand Demand is the desire, ability and willingness of a consumer to buy a product. A WANT Demand is the desire, ability and willingness of a consumer to buy a product. A WANT Microeconomics is the study of the behavior of one consumer or one business Microeconomics is the study of the behavior of one consumer or one business Macroeconomics is the study of the economy of the whole country. Macroeconomics is the study of the economy of the whole country.

3. Demand Schedule A demand schedule is a listing that shows the various quantities (amounts) demanded wants) of a product at all prices you might see in the market. A demand schedule is a listing that shows the various quantities (amounts) demanded wants) of a product at all prices you might see in the market. Price$$ Qty. (how many) Demanded (wanted) $500 $205 $1510 $1027 $547 Demand schedule for Snuggies

4. Demand Curve A demand curve is a graph showing the quantity demanded at each and every price that you might see in a market A demand curve is a graph showing the quantity demanded at each and every price that you might see in a market Snapshot of RIGHT NOW! Snapshot of RIGHT NOW! This demand curve goes DOWN! Movement on red line on demand curve means there has been a change in PRICE ONLY. There is ONE curve (line)

5. If $50, quantity demanded =__ If $50, quantity demanded =__ If $30, quantity demanded =___ If $30, quantity demanded =___ If $5, quantity demanded= ___ If $5, quantity demanded= ___ Demand Curve

6. Law of Demand The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. quantity quantity price demanded If price goes up, demand goes ______________. If price goes down, demand goes _____________. Cost and demand are inversely proportional.

7. Market Demand Curve A market demand curve shows the quantity demanded by everyone who is interested in purchasing the product. A market demand curve shows the quantity demanded by everyone who is interested in purchasing the product. Example: buying a new laptop Example: buying a new laptop

8. If the tickets costs $30, then ________ people want it. At $30, ___ people will demand (WANT) that quantity. If the tickets cost $25, then ________ people want it. At $25, ___ people will demand (WANT) that quantity. Demand curve for Tiger Baseball Tickets… If the tickets costs $15, then ________ people want it. At $15, ___ people will demand (WANT) that quantity.

9. Marginal Utility Marginal utility is the extra enjoyment that a person gets from getting one more! Marginal utility is the extra enjoyment that a person gets from getting one more! YES! One more sucker!!! Extra lollipops bring Erick extra utility!

10. Diminishing Marginal Utility The principle of diminishing marginal utility means that the enjoyment we get from more decreases. The principle of diminishing marginal utility means that the enjoyment we get from more decreases. NOT ANOTHER HOT DOG!!! NOT ANOTHER HOT DOG!!! Think of eating contests or block days at KHS!

11. Section 2 Factors Affecting Demand When there is a change in a people’s willingness and ability to buy, it is because of 2 reasons: When there is a change in a people’s willingness and ability to buy, it is because of 2 reasons: 1. Change in QUANTITY DEMANDED OR 2. CHANGE IN DEMAND

12. Change in Quantity Demanded A change in quantity demanded is a movement ALONG the demand curve that shows …. A change in quantity demanded is a movement ALONG the demand curve that shows …. a change in the quantity of the product purchased WHY? a change in the quantity of the product purchased WHY? change in PRICE. change in PRICE. Examples: 1. Income effect 2. Substitution

13. 1. Income Effect 1. Income Effect NO INCREASE IN YOUR INCOME ($ earned)….. NO INCREASE IN YOUR INCOME ($ earned)….. If price then a person feels they can buy more If price then a person feels they can buy more If price then a person feels they cannot buy as much If price then a person feels they cannot buy as much If he has more money from winning the lottery, what will the effect be on his spending? Income: $100 a week Want gas for car If gas price the person buys (more/less) gas? If gas price the person buys (more/less) gas?

14. 2. Substitution Effect 2. Substitution Effect The substitution effect is the change in quantity demanded because of a change in the price of an item. The substitution effect is the change in quantity demanded because of a change in the price of an item. Example – Substituting a concert ticket for a CD Example – Substituting a concert ticket for a CD Will a person buy more CDs or concert tickets? Will a person buy more CDs or concert tickets? CD $12.99 Concert Ticket $34.75 Mississippi mud pie $3 Severn sludge souffle $5

15. Change in Demand- a SHIFT in Demand A change in demand happens because people are now willing to buy different amounts of the product at the same prices. A change in demand happens because people are now willing to buy different amounts of the product at the same prices. A CHANGE IN DEMAND WILL RESULT IN A NEW DEMAND CURVE. (oh shift!) A CHANGE IN DEMAND WILL RESULT IN A NEW DEMAND CURVE. (oh shift!) There are 2 lines.

16. Changes in Demand Original: price $10,……….Quantity demanded = _____ New Demand price $10………..Quantity demanded = ______

17. What Changes Demand? 1. Consumer income – $$$ earned 2. Consumer tastes - preferences 3. Substitutes– Pepsi for Coke 4. Complements – buns for hotdogs 6. Change in expectations 5. Change in the number of customers PRICE???? NO NO NO

18. Consumer Income Changes in consumer income can cause a change in demand. Changes in consumer income can cause a change in demand. Example – you get a raise or you lose your job Example – you get a raise or you lose your job I can buy (more/less) I can by (more/less)

19. Consumer Tastes Consumers do not always want the same thing. Consumers do not always want the same thing. Example – change in fashion, style, the development of new products Example – change in fashion, style, the development of new products

20. More on Changing Tastes… Changing tastes shift demand curves (and can actually be quite amusing after a few years!). Changing tastes shift demand curves (and can actually be quite amusing after a few years!).

21. Substitutes A change in the price of related products can cause a change in demand. A change in the price of related products can cause a change in demand. Substitutes can be used in place of other products. Substitutes can be used in place of other products. $2.75 $2.00

22. Complements Related goods are known as complements because the use of one increases the use of the other. Related goods are known as complements because the use of one increases the use of the other. Example – peanut butter and jelly, hotdogs and hotdog buns Example – peanut butter and jelly, hotdogs and hotdog buns With cereal, you must buy ______________. With a hot dog, you must buy _________ and ____________.

23. Elasticity Elasticity is the what happens when a dependent variable such as quantity Elasticity is the what happens when a dependent variable such as quantity responds to a change in an independent variable such as price. responds to a change in an independent variable such as price. Pajama bottoms Dependent variable: qty. Independent variable $$$$ Independent variable: $ Dependent variable: what happens? If there is a change in price $$$…… Then the quantity demanded how much want)changes IFTHEN

24. Demand Elasticity Demand Elasticity is how much a change in price causes a change in the quantity demand Demand Elasticity is how much a change in price causes a change in the quantity demand High price  low price Demand change- (quantity want) big change small change little change ELASTIC INELASTIC High price  low price Demand change- (quantity want) big change small change little change

25. Elastic “Elastic” is when a change in price causes a larger change in quantity demanded. “Elastic” is when a change in price causes a larger change in quantity demanded. Example: Example: Beans in summer $2.00 People buy (more/less) Beans in winter $4.00 People buy (more/less)

26. Inelastic Demand Inelastic means that a change in price causes a smaller change in the quantity demanded. Inelastic means that a change in price causes a smaller change in the quantity demanded. People need medicine. Will continue buy if price is low. Will continue to buy if price is high.

27. Unit Elastic Demand Unit elastic means that a given change in price causes a proportional (equal) change in the quantity demanded. (45˚ angle) Unit elastic means that a given change in price causes a proportional (equal) change in the quantity demanded. (45˚ angle) Price increases by $2 Quantity increases by 1

28. What determines demand elasticity? Can the purchase be delayed? Can the purchase be delayed? (can I buy it later?) (can I buy it later?) Are adequate substitutes available? Are adequate substitutes available? (Snickers candy instead of Milky Way?) (Snickers candy instead of Milky Way?) Does the purchase use a large portion of income? Does the purchase use a large portion of income? ( I have been saving for a new phone for a long time. Do I want to use all of my savings for the phone and have nothing left?) ( I have been saving for a new phone for a long time. Do I want to use all of my savings for the phone and have nothing left?)