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Economics Chapter 4
Demand
Demand


Demand is the desire, ability
and willingness to buy a
product.
Demand is a microeconomics
concept. Microeconomics is the
area of economics that deals
with behaviors and decisions
made by small units such as
individuals and firms.
Demand Schedule

A demand
schedule is a
listing that
shows the
various
quantities
demand of a
particular
product at all
prices that
might prevail in
a market.
Demand curve for Snuggies
Price
$50
$20
$15
$10
$5
Qty.
Demanded
0
5
10
27
47
Demand Curve

A demand
The demand curve goes
DOWN!
curve is a
graph showing
the quantity
demanded at
each and
every price
that might
prevail in a
market.
Law of Demand

The Law of Demand states that
the quantity demanded of a
good or service varies inversely
with its price.
Market Demand Curve

A market demand curve shows
the quantity demanded by
everyone who is interested in
purchasing the product.
Marginal Utility

Marginal utility is the extra
usefulness or satisfaction that a
person gets from acquiring or
using one more unit of a
product.
Extra
lollipops bring
Erick extra
utility!
Diminishing Marginal Utility

The principle of diminishing
marginal utility states that the
extra satisfaction we get from
using additional quantities of the
product begins to diminish.
Think of eating contests or
block days at KHS!
Section 2
When there is a change in a
people’s willingness and ability
to buy, it typically falls in one of
two categories –
Change in QUANTITY
DEMANDED OR CHANGE IN
DEMAND

I. Change in Quantity
Demanded
A. A change in quantity demanded
is a movement ALONG the
demand curve that shows a
change in the quantity of the
product purchased in response
to a change in PRICE.
B. Income Effect

The income effect is a change in
quantity demanded (movement ON
the line) because a change in price
alters consumers’ real income.
C. Substitution Effect

The substitution effect is the change
in quantity demanded because of a
change in the relative price of an
item. (Example – Substituting a
concert ticket for a CD)
II. Change in Demand
A. A change in demand occurs
because people are now willing
to buy different amounts of the
product at the same prices.
B. A CHANGE IN DEMAND WILL
RESULT IN AN ENTIRELY
NEW DEMAND CURVE. (shift!)
III. What Changes Demand?
Skip Lines to explain between
A. Consumer income
B. Consumer tastes
C. Substitutes
D. Complements
E. Change in expectations
F. Change in the number of
consumers
Consumer Income


Changes in consumer income
can cause a change in demand.
Example – you get a raise or
you lose your job
Consumer Tastes


Consumers
do not always
want the
same thing.
Example –
change in
fashion, style,
the
development
of new
products
More on Changing Tastes…

Changing tastes
shift demand
curves (and can
actually be quite
amusing after a
few years!).
C. Substitutes


A change in
the price of
related
products can
cause a
change in
demand.
Substitutes
can be used
in place of
other
products.
D. Complements


Related goods
are known as
complements
because the use
of one increases
the use of the
other.
Example –
peanut butter
and jelly,
hotdogs and
hotdog buns
E. Changes in Expectations



Refers to the way people think
about the future
Willingness to buy more at each
and every price
Iphone 5 release date…
F. Change in # of consumers
Test Wed- CH 4
Assignment- Due tomorrow
1. Create 2 demand schedules and a chart for
each. Represent a change in Demand on
one and a change in Quantity demanded
on the other. Make sure the graphs are
labeled…
2. Explain the difference between a change in
demand and change in quantity demanded.
3. Explain how a change in price affects the
demand for a product’s substitute
4. Explain how the income effect explains the
change in quantity demanded when the
price goes down.

Section 3- Elasticity of
Demand


Explain why elasticity is a
measure of responsiveness
Factors that determine demand
elasticity
I. Elasticity- cause and effect
A. Elasticity is the measure
of responsiveness that
tells us how a dependent
variable such as quantity
responds to a change in
an independent variable
such as price.
B. If one things how will it
affect something else.
II.Demand Elasticity
Demand Elasticity is the extent
to which a change in price
causes a change in the quantity
demand
A. Elastic Demand


“Elastic” is
when a given
change in
price causes a
relatively
larger change
in quantity
demanded.
Stretches as
price changes
Perfectly Elastic Product
B. Inelastic Demand

Inelastic means that a given
change in price causes a
relatively smaller change in the
quantity demanded.
Perfectly INELASTIC Demand Curve
C. Change in Price
A.
B.
If change in price causes a
relatively larger change in the
quantity demanded, demand is
elastic
If change in price causes a
relatively smaller change in the
quantity demanded, demand is
inelastic
D. Unit Elastic Demand

Unit elastic means that a given
change in price causes a
proportional change in the
quantity demanded.
Selected Elasticities

Cigarettes



-0.3 to -0.6 US population
-0.6 to -0.7 US children
Airline travel



-0.3 First Class US
-0.4 Unrestricted Coach US
-0.9 Discount

Local newspapers

Oil -0.4 World
Rice







-0.1
-0.47 Austria
-0.8 Bangladesh
-0.8 China
-0.25 Japan
-0.55 US

Beef

Legal gambling




-1.6 US
-1.9 US
-0.80 to -1.0 Indiana/Kentucky
Movies



-0.87 US
-0.2 Teenagers US
-2.0 Adults US

Medical insurance

Bus travel

Insulin

Ford compact automobile

Coke

Mountain Dew






-0.31 US
-0.20 US
-0.01 daily users US
2.8
3.8
4.4
III. Total Expenditures Test
A.
B.
Used to estimate demand
elasticity
Multiply Price by Qty
demanded along any point on
curve. pg 103
IV.What determines demand
elasticity?
A.
B.
C.
D.
Can the purchase be delayed? Yes
= elastic
Create a chart like the one on pg.
106
Are adequate substitutes available?
If yes- consumers can take
advantage of best price= elastic
Does the purchase use a large
portion of income? Yes = elastic
Assignment:
A.
B.
Pg. 107 #’s 4-6
Use complete sentences and
details