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Chapter 4 Demand

Chapter 4 Demand. An Introduction to Demand Demand is the desire, ability, and willingness to buy a product. An individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service. Chapter 4 Demand.

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Chapter 4 Demand

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  1. Chapter 4 Demand • An Introduction to Demand • Demand is the desire, ability, and willingness to buy a product. • An individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service.

  2. Chapter 4 Demand • Economists analyze demand by listing prices and desired quantities in a demand schedule. When the demand data is graphed, it forms a demand curve with the downward slope. • Graph the following data

  3. Graph the following data • Price Quantity Demanded • $30 0 • $25 0 • $20 1 • $15 3 • $10 5 • $5 8 • Now. . Connect the dots. Check answers.

  4. The Law of Demand • The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up. • A market demand curve illustrates how the quantity will fluctuate based upon the market’s demands and depending on the price of a good or service.

  5. Demand and Marginal Utility Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of product. The principle of diminishing marginal utility states that the satisfaction we gain from buying a product lessens as we buy more of the same product. • Ex; Pizza or a hamburger

  6. Complements and Substitutes What causes the shift? • Income -Inferior goods • Consumer Expectations-expect the price to rise, so will the demand, and vise versa • Population • Consumer Taste and Advertising • Complements- goods together • Substitute- goods used in place

  7. Elasticity • Elastic Demand- measurement in reaction to change in price elasticity • Inelastic Demand- not sensitive to a change in price (insulin, oil) • Elastic- very sensitive to price (bottled water) • Unitary elastic- demand whose elasticity is exactly = magazines $2-$3; sell half # of copies

  8. Percentage change in quantity demanded Percentage change in price = Elastic Demand [greater than 1] Or Inelastic Demand [Less than 1] Or Unit-Elastic Demand [Equal to1] Elasticity of Demand: Elastic, Inelastic, or Unit-Elastic

  9. “What’s up what’s up what’s Up with Supply? Law of Supply

  10. Supply • What is supply? The amount of goods available • Law of Supply- As the price for a good or service increases so too does the quantity supplied. • Supply Curve • Market Supply Curve Supply Curve Travels UP Supply

  11. Elasticity • Elastic- Change in price causes a larger change in quantity supplied (q.s.)- long run • Unit elastic change in price causes a proportional change in q.s. • Inelastic- change in price causes a relatively smaller change in q.s. – ex. Orange growers, because it takes a while for output to change

  12. Cost of ProductionLabor and Output • Marginal product of labor- change in output form hiring one more worker. • Specialization increases output • Increasing marginal returns • Diminishing marginal returns- adding one more worker increases total output, but at a decreasing rate.

  13. Technology subsidy Robots have replaced many workers on assembly lines and allowed co. to spend less on salaries Gov’t protect farmers so that they will be able to grow food Changes in Supply examples

  14. Excise tax regulation On cigarettes, alcohol, and high pollutant gas 1970 fed. Gov’t required auto co. to reduce pollution from car exhaust Changes in Supply examples

  15. Production CostsExamples • Fixed Costs- Mortgage • Variable Costs- PG & E • Total Costs- All bills per month • Marginal Costs- extra PG & E bill during the summer

  16. Happy Econ Day • We are going to operate a card making shop here in C106; I will hire the perfect employees for the job and analyze our output, remember we want to increase our output to gain revenue and follow the law of supply.

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