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Study Guide handed out today. It will be due the day you take your Section 2 Test.

Study Guide handed out today. It will be due the day you take your Section 2 Test. What is demand?. The desire, ability and willingness to buy a product Microeconomics concept Microeconomics: area of economics that deal with behavior and decision making by small units

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Study Guide handed out today. It will be due the day you take your Section 2 Test.

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  1. Study Guide handed out today. It will be due the day you take your Section 2 Test.

  2. What is demand? • The desire, ability and willingness to buy a product • Microeconomics concept • Microeconomics: area of economics that deal with behavior and decision making by small units • How does this apply to want vs. need?

  3. How might you determine demand for a product?

  4. The Individual Demand Schedule • A demand schedule is a table showing potential prices for a product and what quantity of the item people would be willing to buy if one unit of the product were that price

  5. The Individual Demand Schedule • People are willing to buy more units of a product at lower prices • After the prices reach a certain point, individuals will not buy any because it is simply too expensive or not worth the price • Example: you may have $1, but you are not going to spend it on a stick of gum – not because it’s unaffordable but because $1 is a ridiculous price for a stick of gum

  6. The Individual Demand Curve

  7. The Individual Demand Curve • A graph showing the quantity demanded at each and every price that might prevail in the market • NOT production possibilities frontier – PPF shows the trade offs in production between different quantity of two products. Demand Curve shows how much of a product a specific person is willing to buy at a given price

  8. The Law of Demand • The quantity demanded of a good or service varies inversely with its price • When the price goes up, quantity demanded goes down Q U A N T I T Y D E M A N D E D P R I CE

  9. Foundations for the Law of Demand • Confirmed by observing human behavior • Think gas prices: gas prices go up, people try to travel less and do not fill their tanks; gas prices go down, there are lines at the station and people purchase a greater quantity of gas • Confirmed in surveys • People say they would buy more of a product if the price was lower

  10. The Market Demand Curve • Similar to the individual demand curve, except this looks at the quantities demanded by EVERYONE who is interested in purchasing the product

  11. Demand and Marginal Utility • Marginal utility is the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product • With the popcorn example: An extra unit of popcorn from the movies means saving it until the next day to enjoy day-old popcorn, which is AWESOME.

  12. Demand and Marginal Utility • Diminishing marginal utility: the extra satisfaction we get from using additional quantities begins to diminish • Popcorn is no longer very good after the next day, so purchasing more than two units of popcorn would not add to enjoyment, which is why the individual demand curve showed I would not purchase 3+ units of popcorn

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