1. Chapter 3- Presentation 1 Demand

2. Law of Diminishing Marginal Utility Each buyer of a product will get less utility from each extra unit consumed Consumers will only buy more units if the prices become progressively cheaper Ex- the 4 th Big Mac will give less satisfaction than the 3 rd, 2 nd, 1st

3. Demand A schedule or curve that shows how much of a product that consumers are willing and able to purchase at a each of a series of possible prices at a specified period of time

4. Quantity Demanded The amount of a good or service that buyer(s) want to purchase at a particular price during some time period

5. Law of Demand Ceteris Paribas, as price falls, the quantity demanded rises, and as the price rises, the quantity demanded falls. ***inverse relationship between price and quantity demanded Ex- if the price of Nike goes up, and Adidas and Reebok stays the same, less Nikes will be purchased

6. Individual Demand Remember- Demand goes Down 6 5 4 3 2 1 0 10 20 30 40 50 60 70 80 Quantity Demanded (bushels per week) Price (per bushel) PQdQd $5 4 3 2 1 10 20 35 55 80 Individual Demand P Q D

7. Individual Demand 6 5 4 3 2 1 0 Quantity Demanded (bushels per week) Price (per bushel) PQdQd $5 4 3 2 1 10 20 35 55 80 Individual Demand P Q D1D1 2 4 6 8 10 12 14 16 18 Demand Can Increase or Decrease Decrease in Demand D2D2 D3D3 An Increase in Demand Means a Movement of the Line A Movement Between Any Two Points on a Demand Curve is Called a Change in Quantity Demanded

8. Explanations for the Law of Demand 1. Common sense- the lower the price, the more people will buy (hence clearance sales) 2. Diminishing Marginal Utility 3. Income and Substitution Effects

9. Income Effect A lower price increases the purchasing power of a buyer’s income A higher price has the opposite effect

10. Substitution Effect At a lower price, buyers will substitute a good in exchange for the higher priced alternative and vice versa Ex- If the price of chicken lowers, the buyer will buy less beef, pork etc.

11. http://www.reffonomics.com/TRB/ chapter4/quantitydemanded.swf Quantity Demanded v Demand

12. Market Demand Assume all the buyers in a market are willing and able to buy the same amounts of a product at each of the possible prices ***adding/multiplying the individual quantities demanded

13. Changes in Demand A new demand curve is drawn Shift to the left for a decrease and right for an increase in demand

14. Determinants of Demand Changes In: TRIBE T- Tastes R- Related Goods’ Price I- Income of Buyers B- # of Buyers E- Expectations of the Future

15. Normal (Superior) Goods As income increases, consumers buy more of a good Direct relationship Ex- steaks, luxury cars

16. Inferior Goods As income increases, demand for the goods falls Inverse relationship Ex- Ramen noodles, cheap beer, retread tires

17. Substitute Goods one that can be used in place of another good An increase in the price of one good will increase the demand of its substitutes and vice versa

18. Complementary Goods One good that is used together with another good If the price of one goes up, the demand for the complement will decline and vice versa Ex- Peanut butter and Jelly, tuition and textbooks