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Published byColin Norton Modified over 9 years ago
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Section 1 - Demand
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Proctor & Gamble’s introduced disposable diapers to the marketplace in 1961. At first parents only used Pampers for special occasions. Today, 95% of American parents use disposable diapers at a cost of about $2,100 a child. Why do you think the change took place gradually?
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Market – the freely chosen actions between buyers and sellers. Consumers influence the price of goods and services in our economy. They do this by creating demand. Demand – the amt of goods/services people are able and willing to buy at various prices. Then those that sell those things decide how much to sell and at what price, we call this supply. Supply – the amt of goods/services producers are able and willing to sell at various prices. Discussion: What are 2 different types of marketplaces you shop at?
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The basis of all activity in a market economy is the principle of voluntary exchange. Voluntary Exchange – buyers and sellers exercise their economic freedom by working out terms of exchange. The seller sets a price, if the buyer agrees to that price they will agree to that price by purchasing it. If the buyer does not agree to the price, they can wait and see if the price goes down and buy it then.
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Demand is comprised of 3 factors: 1. Desire – do they want the product 2. Ability to pay 3. Willingness to pay Law of Demand – Inverse relationship between quantity demanded and price. - Price goes, demand goes Other than change the price, how can the seller convince the buyer to agree to the price?
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Utility – the satisfaction a consumer gets from a good or service. Sellers use advertising to convince buyers that their product will add to their utility. Based on utility, people decide what and how much to buy and also, how much they are willing to pay. Marginal Utility – an additional amount of satisfaction Law of Diminishing Marginal Utility – the amt of satisfaction will lessen with each additional unit of a product. Think of eating at a buffet and with each plate of food you get less and less utility. Plate 1 gives you a ten for utility, plate 2 gives you a 7 because you aren’t as hungry, plate 3 gives you a 4 because you are getting so full it is almost uncomfortable to sit.
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Substitution effect – when two products offer the same needs, if the price for one of these products rises people will buy the other products because it is cheaper. Examples: ◦ Coke vs. Pepsi ◦ Nike vs. Under Armour
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What are some reasons that people substitute one product for another? What are some reasons that people continue to buy a product despite its price?
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