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Economics Chapter 4

Economics Chapter 4. Demand. Demand. Demand is the desire, ability and willingness of a consumer to buy a product. A WANT Micro economics is the study of the behavior of one consumer or one business Macro economics is the study of the economy of the whole country. Demand Schedule.

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Economics Chapter 4

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  1. Economics Chapter 4 Demand

  2. Demand • Demand is the desire, ability and willingness of a consumer to buy a product. A WANT • Microeconomics is the study of the behavior of one consumer or one business • Macroeconomics is the study of the economy of the whole country.

  3. Demand Schedule • A demand schedule is a listing that shows the various quantities (amounts)demanded wants) of a product at all prices you might see in the market. Demand schedule for Snuggies

  4. Demand Curve This demand curve goes DOWN! • A demand curve is a graph showing the quantity demanded at each and every price that you might see in a market • Snapshot of RIGHT NOW! Movement on red line on demand curve means there has been a change in PRICE ONLY. There is ONE curve (line)

  5. Demand Curve • If $50, quantity demanded =__ • If $30, quantity demanded =___ • If $5, quantity demanded= ___

  6. Law of Demand • The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. quantity quantity price demanded price demanded Cost and demand are inversely proportional. If price goes up, demand goes ______________. If price goes down, demand goes _____________.

  7. Market Demand Curve • A market demand curve shows the quantity demanded by everyone who is interested in purchasing the product. • Example: buying a new laptop

  8. Demand curve for Tiger Baseball Tickets… If the tickets cost $25, then ________ people want it. At $25, ___ people will demand (WANT) that quantity. If the tickets costs $15, then ________ people want it. At $15, ___ people will demand (WANT) that quantity. If the tickets costs $30, then ________ people want it. At $30, ___ people will demand (WANT) that quantity.

  9. Marginal Utility • Marginal utility is the extra enjoyment that a person gets from getting one more! YES! One more sucker!!! Extra lollipops bring Erick extra utility!

  10. Diminishing Marginal Utility • The principle of diminishing marginal utility means that the enjoyment we get from more decreases. • NOT ANOTHER HOT DOG!!! Think of eating contests or block days at KHS!

  11. Section 2 Factors Affecting Demand • When there is a change in a people’s willingness and ability to buy, it is because of 2 reasons: 1. Change in QUANTITY DEMANDED OR 2. CHANGE IN DEMAND

  12. Change in Quantity Demanded • A change in quantity demanded is a movement ALONG the demand curve that shows …. • a change in the quantity of the product purchased WHY? • change in PRICE. Examples: 1. Income effect 2. Substitution

  13. 1. Income Effect Income: $100 a week Want gas for car If gas price the person buys (more/less) gas? If gas price the person buys (more/less) gas? • NO INCREASE IN YOUR INCOME ($ earned)….. • If price then a person feels they can buy more • If price then a person feels they cannot buy as much If he has more money from winning the lottery, what will the effect be on his spending?

  14. 2. Substitution Effect • The substitution effect is the change in quantity demanded because of a change in the price of an item. • Example – Substituting a concert ticket for a CD • Will a person buy more CDs or concert tickets? CD $12.99 Concert Ticket $34.75 Mississippi mud pie $3 Severn sludge souffle $5

  15. Change in Demand- a SHIFT in Demand • A change in demand happens because people are now willing to buy different amounts of the product at the same prices. • A CHANGE IN DEMAND WILL RESULT IN A NEW DEMAND CURVE. (oh shift!) There are 2 lines.

  16. Changes in Demand Original: price $10,……….Quantity demanded = _____ New Demand price $10………..Quantity demanded = ______

  17. 2. Consumer tastes - preferences 3. Substitutes– Pepsi for Coke 1. Consumer income – $$$ earned What Changes Demand? 4. Complements – buns for hotdogs 6. Change in expectations 5. Change in the number of customers PRICE???? NO NO NO

  18. Consumer Income • Changes in consumer income can cause a change in demand. • Example – you get a raise or you lose your job I can buy (more/less) I can by (more/less)

  19. Consumer Tastes • Consumers do not always want the same thing. • Example – change in fashion, style, the development of new products

  20. More on Changing Tastes… • Changing tastes shift demand curves (and can actually be quite amusing after a few years!).

  21. Substitutes $2.75 • A change in the price of related products can cause a change in demand. • Substitutescan be used in place of other products. $2.00

  22. Complements • Related goods are known as complements because the use of one increases the use of the other. • Example – peanut butter and jelly, hotdogs and hotdog buns With cereal, you must buy ______________. With a hot dog, you must buy _________ and ____________.

  23. Elasticity • Elasticity is the what happens when a dependent variable such as quantity • responds to a change in an independent variable such as price. Independent variable $$$$ Pajama bottoms Dependent variable: qty. Then the quantity demanded how much want)changes IF THEN If there is a change in price $$$…… Independent variable: $ Dependent variable: what happens?

  24. Demand Elasticity • Demand Elasticity is how much a change in price causes a change in the quantity demand ELASTIC High pricelow price Demand change- (quantity want) big change small change little change INELASTIC High pricelow price Demand change- (quantity want) big change small change little change

  25. Elastic • “Elastic” is when a change in price causes a larger change in quantity demanded. • Example: Beans in summer $2.00 People buy (more/less) Beans in winter $4.00 People buy (more/less)

  26. Inelastic Demand • Inelastic means that a change in price causes a smaller change in the quantity demanded. People need medicine. Will continue buy if price is low. Will continue to buy if price is high.

  27. Unit Elastic Demand • Unit elastic means that a given change in price causes a proportional (equal) change in the quantity demanded. (45˚ angle) Price increases by $2 Quantity increases by 1

  28. What determines demand elasticity? • Can the purchase be delayed? (can I buy it later?) • Are adequate substitutes available? (Snickers candy instead of Milky Way?) • Does the purchase use a large portion of income? ( I have been saving for a new phone for a long time. Do I want to use all of my savings for the phone and have nothing left?)

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