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Demand

Demand. Supply and Demand. Economics in a market economy, at its most basic & fundamental form is SUPPLY & DEMAND. Demand Perspective. Economics from the perspective of the consumer. DEMAND. Quantity of goods and services that a consumer is WILLING and ABLE to purchase at various prices.

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Demand

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  1. Demand

  2. Supply and Demand • Economics in a market economy, at its most basic & fundamental form is SUPPLY & DEMAND.

  3. Demand Perspective • Economics from the perspective of the consumer

  4. DEMAND • Quantity of goods and services that a consumer is WILLING and ABLE to purchase at various prices

  5. DEMAND – 3 Components • Able • Willing • Quantities Purchased at Various Prices

  6. Demand - Able • You must have enough money to make the purchase. If you can’t afford something (a private jet, for instance), you don’t have an effective demand for it.

  7. DEMAND - Willing • You must be willing to make the purchase. If you’re not willing to spend your income on it, you do not have an effective demand for it.

  8. DEMAND - Quantities purchased at Various Prices • Qty Demanded changes when price changes

  9. Demand Schedule • List of quantities that would be purchased at various prices in table format

  10. Demand Schedule Quantity Purchased Weekly Price $20 $25 $30 $35 21 18 15 12

  11. Demand Curve • Demand curve plots these (from Demand Schedule) points • Shows graphically the relationship between price & quantity demanded

  12. Demand Curve • Vertical Axis - Prices • Horizontal Axis - Quantity Demanded

  13. Law of Demand • Inverse Relationship Between Prices and Quantity Demanded: • Price Increases -> Less Quantity Demanded • Price Decreases -> More Quantity Demanded

  14. Demand Curve (Inverse Relationship) Price Demand Quantity

  15. Reasons Why The Demand Line Is Downward Sloping • Law Of Diminishing Marginal Utility • Income Effect • Substitution Effect

  16. Marginal Utility • Marginal – A small change • Utility = Usefulness or Satisfaction • Marginal Utility is the amount of satisfaction derived from 1 additional unit of a product

  17. Law of Diminishing Marginal Utility • As additional units of a product are consumed during a given period of time, the additional satisfaction derived from the good decreases

  18. Law of Diminishing Marginal Utility Utility Units of Goods

  19. Proves Inverse Relationship between Prices and Quantity Demanded b/c… • At higher quantities, people want it less and so they’ll be less willing to pay higher prices

  20. Income Effect • The effect that increasing or decreasing prices have on the purchasing power of your income

  21. Income Effect Cont’d • allows you to be able to purchase 5 items • What’s the Purchasing Power of $5 (your income) for the items on the dollar menu? What if the dollar menu became the half dollar menu? What if the dollar menu became the $2 menu? Price changes affect the buying power of your INCOME & thus your ability & willingness to purchase products

  22. Proves Inverse Relationship between Prices & Quantity Demanded b/c… • At Higher Prices, people’s incomes will be ABLE to buy LESS

  23. Substitution Effect • Change in the combination of goods purchased as a result of increasing or decreasing relative prices

  24. Substitution Effect Cont’d • What might people do if the price of movie theater tickets go up to $15? Get more Angel Tickets Go see more Plays or Stand-Up Comedy Acts Buy more DVDs

  25. Proves Inverse Relationship between Prices & Quantity Demanded b/c… • At higher prices, people will substitute that product with cheaper substitutes

  26. Homework: “Demand 3 Paragraphs” • Explain in your own words each in a separate paragraph • The Income Effect • Diminishing Marginal Utility • The Substitution Effect Each of the paragraphs must include an ORIGINAL example that is explained

  27. Determinants of Demand

  28. Change in Quantity Demandedv.Change in Demand

  29. Caused by an increase or decrease in PRICE Causes movement ALONG the demand line Change in Quantity Demanded Point A Price Point B Quantity Demanded/Purchased

  30. Caused by 1 or more determinants of demand Causes a shift of the ENTIRE demand line Change in Demand Price Quantity Purchased/Demanded

  31. Determinants of Demand • Demand changes even if there is no change in price • It will shift the entire demand line

  32. Consumer income Consumer attitude Price of a complimentary product Price of a substitute Population Weather Expectations The Determinants

  33. Change in Income • Generally, an increase in income leads to an increase in demand. This is b/c consumers are more willing and able to buy more products Can you think of any products that would be an exception to this statement?

  34. Change in Income Cont’d • Normal goods- Demand increases as income increases • Inferior goods- Demand decreases as income increases. Ex. Ground Meat

  35. Change in Income Cont’d • If someone who was unemployed for 2 yrs finds employment at a solid-paying job, what will happen to his/her demand for normal goods? What will happen to his or her demand for inferior goods like canned goods from a generic producer?

  36. Changing Attitudes • Tastes and Preferences • Trends • Fads

  37. Changing Attitudes Cont’d • List in your notes 5 examples of trends and fads that have come and gone or are currently in but you expect will end in the near future

  38. Trends/Fads That Have Come and Gone

  39. Change in Price of a Complementary Good • Complementary goods- Products that are used together. • List 4 Examples

  40. Complimentary Goods Cont’d • If the price of peanut butter was to increase, what would happen to the qty demanded for peanut butter? Qty Demanded for Peanut Butter will DECREASE What will happen to the demand for Jelly? Demand for Jelly will DECREASE

  41. Complimentary Goods Cont’d • If the price of Hot Dogs decreases, what will happen to the qty demanded for Hot Dogs? Qty Demanded for Hot Dogs will INCREASE What will happen to the demand for Hot Dog Buns? Demand for Hot Dog Buns will INCREASE

  42. Change in Price of a Complimentary Good Cont’d • If qty demanded changes (up or down) for an original good, than the demand changes for the complimentary good in the SAME way

  43. Complimentary Goods Cont’d In Price for an Original Good Qty Demanded for the Original Good Demand for the Complimentary Good The OPPOSITE of each is TRUE

  44. Change in Price of a Substitute • Substitute goods- Products similar enough they can replace the other • List 4 Examples

  45. Substitute Goods Cont’d • If the price of margarine goes up, what will happen to the qty demanded for margarine? Qty demand for margarine will DECREASE What will happen to the demand for butter? The demand for butter will INCREASE

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