1. Notes: Chap 3 Demand

2. 1.Demand: Amount of goods or services consumers will buy at various prices.

3. 2. Law of Demand: There is an opposite relationship between price and quantity demanded.

4. 3. Substitution Effect: Consumers will replace an expensive product with a similar lower priced product. $9 per pound $6.50 per pound

5. 4. Diminishing Marginal Utility: As more units are consumed, satisfaction declines (lunch tacos)

6. 5. Demand Schedule: Lists the quantity of goods consumers will buy at each price.

7. 6. Demand Curve: Plots a Demand Schedule on a graph.

8. 7. Demand Shifts: Factors other than price that cause a change in demand.

9. 8. What can cause a shift in demand? a.Consumer Tastes and Preferences - Example: iPhone

10. 8. What can cause a shift in demand? a.Consumer Tastes and Preferences $550 $150 9.7-inch screen; 1024-by-768-pixel resolution 7 Inch Screen; 800x600 pixel resolution

11. 8. What can cause a shift in demand? b. Market Size - Example: China - Oil lamps from Rockefeller (1882)

12. 8. What can cause a shift in demand? c.Income - Example: Recession

13. 8. What can cause a shift in demand? d. Prices of Related Goods i. Substitute Good: Replace expensive good with similar lower prices good. 1. Substitute Good Example: CVS brand eye drops

14. 8. What can cause a shift in demand? ii. Complementary Good: Goods that are used with other goods. 1. Complementary Good Example: Running Accessories $75 $30 $90 $120 $135

15. 8. What can cause a shift in demand? e. Consumer Expectations: Consumers make decisions based on anticipated earnings.

16. 9. Elastic Demand: When a change in price makes an opposite change in demand. a. Required for Elasticity: 1. Product is not necessary 2. Substitute products are available 3. Costly? i. Example: Pizza (for students)

17. 10. Inelastic Demand: When a change in price has no impact on demand. a. Required for Inelasticity: 1. Product is necessary 2. No substitutes are available 3. Not costly i. Example: Salt, Soap, heart medication, gasoline

18. 11. Total Revenue: Income that a business receives from selling its products at a given price. It is the simplest way to determine elasticity.