Download DEMAND

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 Sec 1 – What is Demand?
 Sec 2 – Factors Affecting Demand
 Sec 3 – Elasticity of Demand
 Sec 1
 Describe and illustrate the concept of demand
 Explain how demand and utility are related
 Demand – the desire, ability, and
willingness to buy a product
 The Product is NOT in demand if people are
not willing to buy it.
 An individual demand schedule is a listing of the
quantity demanded for a particular product at all
prices that might prevail in the market.
 An individual demand curve illustrates how the
quantity that a person will demand varies depending
on the price of a good or service
 P 90/Fig 4.1
 Law of Demand – states that the quantity
demanded of a good or service varies inversely
with its price. When price goes up, the Qd
goes down; when price goes down, Qd goes up.
 Think about that… When something is more
expensive would you buy less or more of that
product? When something is less expensive
would you buy more or less of that product?
Why?
 You get the Market Demand Curve by adding
together two or more individual demand
schedules.
 A market demand curve illustrates how the
quantity that all interested persons (the market)
will demand varies depending on the price of a
good or service.
 P 92/Fig 4.2
 Why is price a consumer’s obstacle to buying?
 Marginal utility is the extra usefulness or satisfaction
a person receives from getting or using one more unit
of a 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
 This is why the demand curve is downward sloping, we
are not willing to pay as much for the second, third, or
fourth (and so on) as we did the first.
 Assignment:
 Choose either jeans, MP3 Players, or movies. Create an
individual demand schedule and an individual demand
curve for your chosen product.
 Now find someone who chose the same product as you,
create a market demand schedule and a market demand
curve based on both of your data. (Example on page 92)
 Imagine you are working for a company that produces
skinny jeans. All of a sudden; bell bottoms, leggings,
and track suits become extremely trendy and Skinny
Jeans are out! You are quickly losing profit and your
company is in jeopardy of going out of business,
putting you in a box under the highway.
 Come up with 3 different ways to solve your company’s
dilemma and keep your job!
Sec 2
 Explain what causes a change in quantity demanded
 Describe the factors that could cause a change in
demand
 The change in quantity demanded
shows a change in the amount of a
product purchased when there is a
change in price
 The income effect means that as prices drop,
consumers are left with extra real income
 The substitution effect means that price can cause
consumers to substitute one product for another
similar but cheaper item
 P 96/FIG 4.3
 Minimum wage has increased to $10 an hour.
 Prices of MP3 players fell.
 Powerful advertisements make MP3 players much
more appealing.
 What would happen to the demand for MP3 players?
 Why?
 A change in demand is when people buy different
amounts of the product at the same prices
 What do you think could cause a change in demand?
 A change in demand can be caused by a change in:
 Income
 Tastes
 Price change of a related product
(Substitutes/Compliments)
 Consumer expectations
 Number of buyers
 P 98/FIG 4.4
 A disease destroys much of the coffee crop in South
America.
 How might this affect the price of coffee?
 What are some substitute products for coffee? How
might this affect the demand for those substitute
products?
 What are some complimentary products for coffee? How
might this affect the demand for those complimentary
products?
“Trendy”Activity
 Sec 3
 Analyze the elasticity of demand for a product
 Explain why elasticity is a measure of responsiveness
 Understand the factors that determine demand
elasticity
Elasticity measures how
sensitive consumers are to
price changes
Demand Elasticity
Elastic
Demand:
A change in
price causes a
relatively larger
change in the
Qd.
Unit Elastic
Demand:
A change in price
causes
proportional
change in the
Qd.
Inelastic
Demand:
A change in
price causes a
relatively
smaller change
in the Qd.
 Price times quantity demanded equals total
expenditures
 Changes in expenditures depend on the elasticity of a
demand curve
 Understanding the relationship between elasticity and
profits can help producers effectively price their
products
 P 103/FIG 4.5
 Demand is elastic if the answer to the following
questions are “yes.”
 Can the purchase be delayed?
 Are adequate substitutions available?
 Does the purchase use a large portion of income?
 P 106/FIG 4.6
You own a resturant that is fully booked during
the weekends. In mid-week, however, you rarely have
enough bookings to stay open. To make more money
during this slow period, you decide to cut dinner prices
from $15 to only $10 on Wednesdays and Thursdays.
• Create an ad poster for your dinner specials.
• On separate paper, answer:
• Do you think this action will increase your revenues?
• Draw graphs similar to those in figure 4.5 on page 103 to
illustrate your answer.