Download Notes: Chap 3 Demand - Stamford High School

Notes: Chap 3 Demand
1.
Demand:
Amount of goods or services consumers will
buy at various prices.
2. Law of Demand:
There is an opposite relationship between price and
quantity demanded.
3. Substitution Effect:
Consumers will replace an expensive product with a
similar lower priced product.
$9 per pound
$6.50 per pound
4. Diminishing Marginal Utility:
As more units are consumed, satisfaction declines
(lunch tacos)
5. Demand Schedule:
Lists the quantity of goods consumers will buy at each
price.
6. Demand Curve:
Plots a Demand Schedule on a graph.
7. Demand Shifts:
Factors other than price that cause a change in demand.
8. What can cause a shift in demand?
a.
Consumer Tastes and Preferences - Example: iPhone
8. What can cause a shift in demand?
a.
Consumer Tastes and Preferences
$550
7 Inch Screen; 800x600 pixel resolution
$150
9.7-inch screen; 1024-by-768-pixel resolution
8. What can cause a shift in demand?
b.
Market Size - Example: China - Oil lamps from Rockefeller (1882)
8. What can cause a shift in demand?
c.
Income
- Example: Recession
8. What can cause a shift in demand?
d. Prices of Related Goods
i. Substitute Good:
Replace expensive good with similar lower prices good.
1. Substitute Good Example: CVS brand eye drops
8. What can cause a shift in demand?
ii. Complementary Good:
Goods that are used with other goods.
1. Complementary Good Example: Running Accessories
$75
$135
$90
$120
$30
8. What can cause a shift in demand?
e. Consumer Expectations:
Consumers make decisions based on anticipated earnings.
9. Elastic Demand:
When a change in price makes an opposite change in
demand.
a. Required for Elasticity:
1. Product is not necessary
2. Substitute products are available
3. Costly?
i. Example: Pizza (for students)
10. Inelastic Demand:
When a change in price has no impact on demand.
a. Required for Inelasticity:
1. Product is necessary
2. No substitutes are available
3. Not costly
i. Example: Salt, Soap, heart medication, gasoline
11. Total Revenue:
Income that a business receives from selling its products at a
given price. It is the simplest way to determine elasticity.