Download Chapter 20 Notes

Chapter 20 Notes
I.
Section 1 : What is Demand?
A. Demand
1. Demand in economics means – The desire, willingness, and ability to
buy a good or service.
1. You must want it.
2. You must be willing to buy it.
3. You must have the money to afford it.
2. Demand Schedule
1. Just a chart that list the numbers of things you will buy at certain
prices.
2. Draw Chart.
3. Individual Demand Curve
1. A graph that shows the amount a single product that you will buy
at certain prices.
2. Draw Chart (Price on Vert, Quantity on Horz.)
4. Law of Demand
1. Just like scientific laws, economics have them too.
2. Law of Demand – Quantity demanded and price move in opposite
directions.
3. Kind of obvious.
B. Individual v. Market Demand
1. Market Demand – Companies want to know the total market (all
consumers) for their products at various prices.
1. Can also be shown as a demand chart or graph.
2. Demand Illustrated – Various ways to determine the best price to sell
your products.
C. Diminishing Marginal Utility
1. Utility – The pleasure, usefulness, or satisfaction we get from using a
product.
1. Utility can vary from one person to another. We all like different
things.
2. Utility usually changes as we consume more of the same product.
3. You get less Marginal Utility with each extra item… this is called
Diminishing Marginal Utility.
4. Each time we consider purchasing an extra item, internally we
calculate the marginal benefit of buying the item verses the
diminishing utility for each.
II.
Section II : Factors Affecting Demand
A. Changes in Demand
1. Demand for any product changes over time.
a. Sometimes people are willing to buy goods at a certain
price, and sometimes they are not.
b. EX: Hurricanes, Snow Storms, Christmas, ???
2. Reasons for Demand Changes
a. When more consumers enter the market (China)
b. Also, when incomes change, tastes, and expectations.
c. Finally, because a change in a related goods prices. (EX: if
peanut butter prices rise, demand for PB will decline and so
might demand for Jelly or bread.
3. Changes in the # of Consumers
a. EX: New Neighborhood.
4. Changes in Consumers Incomes
a. New job… willing to pay more for goods.
5. Changes in Tastes
a. “Must get items”, What is cool today? Timberlands? What else?
6. Changes in Expectations
a. New inventions, for bad times ahead.
7. Draw Demand Chart with Changes in Demand (Higher and Lower)
8. Changes in Substitutes
a. Competing products are called Substitutes.
b. You can use them in place of another.
c. When the original good rises in price, the Substitute goods
Demand increases.
9. Changes in Complements
a. Complements, meaning they are used together.
b. Ex: Computers and Software, ???
c. When price changes (increases) in one good, the demand
for the complementary good decreases.
B. Elasticity of Demand
1. Demand Elasticity: The amount that a change in price causes a
change in quantity demanded.
2. Elastic Demand
a. For some products, a change in price causes a larger change
in quantity demanded.
b. Ex: Cars, Modest increase in price = less sold.
c. Also, wWhen there a lots of substitutes for a product, then
it can be elastic since people will buy the substitute if the
price increases.
d. Expensive items are generally Elastic.
e. Also, Demand is Elastic if the purchase can be postponed
until later. Ex: Home. May wait for interest rates to go
down.
3. Inelastic Demand
a. Goods are Inelastic if changes in price have little or no
effect on demand.
b. Ex: Turkey at Thanksgiving, Gas, Heating Oil.
c. Also, goods with few or no substitutes are inelastic,
Example: medicine, electricity.
4.