Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Chapter 3 Demand Demand (D) is the amount of a good or service a consumer is willing and able to purchase at various prices during a given period of time. W+A=D Quantity Demanded (QD) is the amount of a good or service a consumer is willing and able to purchase at each price during a given period of time. What is the difference between D and QD? D measures W + A at various prices. QD measures W + A at one (particular) price. The Law of Demand When the price of a good or service increases, the quantity demanded decreases. When the price of a good or service decreases, the quantity demanded increases. This is an inverse (opposite) relationship. Demand Schedule Illustrates the relationship between the price of a good or service and the quantity demanded for the good or service. Shows the law of demand. Price Per Car Quantity Demanded $10,000 1000 $8,000 1200 $6,000 1500 $4,000 3000 $2,000 5000 A demand graph is a graphic illustration of the demand schedule. A demand curve plots the information from the demand schedule on to the demand graph. Each plotted point on the graph represents a specific combination of price and quantity demanded. The demand curve slopes downward, right. 10,000 8,000 P Price Per Car Quantity Demanded $10,000 1000 $8,000 1200 $6,000 1500 $4,000 3000 $2,000 5000 6,000 4,000 2,000 D 0 1,000 1,200 1,500 3,000 QD 5,000 Examples of the Law of Demand The Income Effect 1. Purchasing Power - The amount of money one has available to spend on goods and services. 2. Any change in a consumers’ purchasing power which is caused by a change in price 3. The income effect may not always apply. The Substitution Effect Substitute goods - Goods that can be used in place of one another. Consumers tend to substitute a similar, lowerpriced good for another good that is higher-priced. The substitution effect may not always apply. Diminishing Marginal Utility Utility - Usefulness or satisfaction gained from the consumption of a good or service. With each additional unit of consumption of a good or service, less satisfaction from each unit of consumption will be received. Demand will decrease because at some point, consumers cannot use any more of a good or service. Demand Shifts With the passage of time, factors other than price (non-price factors) can affect demand for a good or service. The result of non-price factors affecting demand is that the entire demand curve shifts either to the right or to the left. This means that quantity demanded changed at every price. P Q An INCREASE in demand shifts the entire demand curve to the RIGHT. A DECREASE in demand shifts the entire demand curve to the LEFT There are five non-price factors which determine demand for a good or service: 1. Consumer Taste and Preference 2. Market Size 3. Income 4. Prices of Related Goods 5. Consumer Expectations Consumers’ taste and preference for comfort, quality, trends, holidays, seasons, etc. can have an effect on demand Market Size Changes in the size of the market can have an effect on demand. Three factors can change market size: 1. Decisions made by private businesses 2. Government policies 3. New technology Income Changes in consumers’ income can have an effect on demand. Prices of Related Goods The demand for a good or service can be affected by the prices of related goods Two types of related goods: 1. Substitute goods are goods that can be used to replace a similar good 2. Complementary goods are goods that are usually used together Consumer Expectations Expectations of one’s future income can have an effect on demand. Elasticity of Demand The degree to which changes in good’s price affect the quantity demanded by consumers. Exist when small change in a good’s price causes a major, opposite change in quantity demanded Can change if: The product is not a necessity There are readily available substitutes The product’s cost represents a large portion of consumer’s income Inelastic Demand Exist when a change in a good’s price has little impact on the quantity demanded Can change if The product is a necessity There are few or no readily available substitutes for the product Product cost represents a small portion of consumers income Measuring Elasticity Total-revenue test – refers to the total income a business receives from selling its products. Monitoring changes in prices before & after – determines elasticity of demand for a product. Prices can make inelastic or elastic