Download Demand - cloudfront.net

Demand
Tuesday, September 15
First we will review some commonly missed test
questions.
The
marginal cost of
something is…
the
cost to produce one
additional unit.
COMMONLY MISSED TEST QUESTIONS
When
the Constitution states
that “no tax or duty shall be laid
on articles exported from any
State,” it is strongly supporting
Competition.
COMMONLY MISSED TEST QUESTIONS
An
externality exists when
one
person’s actions
affect another person.
COMMONLY MISSED TEST QUESTIONS
The
government produces
non-excludable public
goods because
the
private market will
not produce them.
COMMONLY MISSED TEST QUESTIONS
National
defense is a good
example of a public good
because
it
is difficult to exclude people
from receiving the benefits
from national defense once it
is provided
COMMONLY MISSED TEST QUESTIONS
There
is a strong
correlation between
globalization and
life
expectancy.
COMMONLY MISSED TEST QUESTIONS
Which
of the following is
NOT a result of
globalization?
Countries
tend to
associate politically and
economically with their
“own kind.”
COMMONLY MISSED TEST QUESTIONS
Chapter 4: Section 1
Understanding Demand
What Is Demand?
Markets are where people come together to buy and sell
goods and services.
• DEMAND is the buying side of a market.
• SUPPLY is the selling side of a market.
Demand refers to the willingness and ability of buyers to
purchase a good or service.
• Both willingness and ability must be present; if either is
missing, there is no demand.
Quantity demanded is different from demand. Quantity
demanded is the number of units of a good purchased at a
specific price. Quantity demanded is always a number.
What Does the Law of Demand “Say”?
The law of demand says that as the price of a good
INCREASES, quantity demanded of the good DECREASES,
and as price of a good decreases, quantity demanded of the
good increases.
Quantity DEMANDED refers to the number of units of a good
purchased at a specific price.
• Basically, it says that when the price goes up, the quantity
demanded goes down—and when the price goes down, the
quantity demanded goes up.
• Do you notice anything about the relationship between price
and quantity demanded? They move in opposite directions.
The Law of Demand
Why is the law of demand important, and what does it mean to
you? It shows that you, and other consumers, are willing to
purchase fewer goods as the price goes up. And it shows that
you are willing to purchase more goods as the price goes down.
Why Do Price and Quantity Demanded Move in Opposite
Directions?
Price and quantity demanded move in opposite directions
because of the law of DIMINISHING MARGINAL utility.
The law of diminishing marginal utility states that as a person
consumes additional units of a good, the utility gained from
each additional unit of the good DECREASES.
Diminishing means decreasing
Marginal means additional
Utility means satisfaction
The Law of Demand in
Numbers and Pictures
We can actually show
how the law of demand
works by listing prices
and quantities demanded
in a table, and by plotting
those numbers in a
graph.
• A demand
SCHEDULE is a
numerical chart
showing the law of
demand.
• A demand curve is
a(n) GRAPHICAL
representation of the
law of demand.
The Law of Demand in Numbers and Pictures
A(n) INDIVIDUAL demand curve represents and individual’s
demand.
A(n) MARKET demand curve is the sum of all individual
demand curves added together.
REVIEW QUESTIONS
1. Use the terms demand and quantity demanded correctly in a
sentence about concert tickets.
•
The demand for concert tickets represents the people
who are willing and able to buy them but as the price
of a concert tickets increases, the quantity demand will
decrease.
2. Yesterday the price of a good was $10, and the quantity
demanded was 100 units. Today the price of the good is $12, and
the quantity demanded is 87 units. Did quantity demanded fall
because the price increased, or did the price rise because quantity
demanded fell?
•
The increase in price is the cause, and the fall in
quantity demanded is the effect.
REVIEW QUESTIONS
3. What does the law of diminishing marginal utility have to do with
demand?
•
The law of diminishing marginal utility states that
individuals eventually obtain less utility from
additional units of a good, so it follows that they will
buy larger quantities of a good only at lower prices.
The law of demand states that individuals will buy
more of a good at lower prices.
4. Assume that the law of demand applies to criminal activity. What
might community leaders do to reduce the number of crimes
committed in the community.
•
Answers will vary. Students might mention that
increasing the punishment for a crime (price) is likely
to decrease people’s willingness to commit the crime
(demand).
Chapter 4: Section 2
The Demand Curve Shifts
When Demand
Changes, the
Curve Shifts
Demand can
change. It can go
up, or it can go
down.
A rightward shift
means that
demand has
INCREASED.
A leftward shift
means that
demand has
DECREASED.
What Factors Cause Demand Curves to Shift?
Five factors cause demand curves to shift:
•
•
Income.
•
A good for which demand rises as income rises
and falls as income falls is a (n) NORMAL
GOOD.
•
A good for which demand falls as income rises
and rises as income falls is a (n) INFERIOR
good.
•
If a person buys the same amount of a good when
income changes, the good is a neutral good.
Preferences.
•
People’s PREFERENCES affect how much of a
good they buy.
•
•
Prices of related goods.
•
With SUBSTITUTES, the demand for one good
moves in the same direction as the price of the
other good.
•
With COMPLEMENTS, the demand for one
good moves in the opposite direction as the price
of the other. Complements are goods used
together.
Number of buyers. A change in the number of buyers,
either an increase or a decrease, can change demand.
•
Future price.
•
Buyers who expect the price of a good to be
HIGHER in the future may buy the good now. In
this case, current demand for the good
INCREASES.
•
Buyers who expect the price of a good to be
LOWER in the future may wait and buy the good
later. In this case, current demand for the good
FALLS.
What Factor Causes a Change in Quantity Demanded?
A change in quantity demanded refers to a movement
ALONG a demand curve.
Only the PRICE of the good can directly cause a change in
the QUANTITY DEMANDED.
The only factor that affects quantity
demanded is price.
Review Questions
1. Explain what it means if demand increases.
It means that buyers want to buy more of the good at each and
every price.
2. Identify a good that is a substitute for one good and a complement for
another. (Hint: A Coca-Cola may be a substitute for a Pepsi but a
complement for a hamburger.)
Coffee and tea are substitutes. Coffee and sugar/cream are
complements.
3. In recent years the price of a computer has fallen. What effect is this
price change likely to have on the demand for software? Explain your
answer.
Computer hardware and software are complements. With
complements, the price of one is inversely related to the
demand for the other. Thus, as the price of computers falls,
the demand for software is predicted to rise.