Economics Chapter 4Economics Chapter 4

DemandDemand

DemandDemand

Demand is the desire, ability Demand is the desire, ability and willingness of a consumer and willingness of a consumer to buy a product. to buy a product. A WANT A WANT

MicroMicroeconomics is the study of economics is the study of the behavior of one consumer or the behavior of one consumer or one businessone business

MacroMacroeconomics is the study of economics is the study of the economy of the whole the economy of the whole country.country.

Demand ScheduleDemand Schedule

A A demand schedule demand schedule is a is a listing that shows the listing that shows the various quantities various quantities (amounts) demanded (amounts) demanded wants) of a product at all wants) of a product at all prices you might see in the prices you might see in the market.market.

PricePrice

$$$$

Qty. Qty. (how many)(how many) Demanded Demanded

(wanted)(wanted)

$50$50 00

$20$20 55

$15$15 1010

$10$10 2727

$5$5 4747

Demand schedule for Snuggies

Demand CurveDemand Curve

A demand curve is a A demand curve is a graph showing the graph showing the quantity demanded at quantity demanded at each and every price each and every price that you might see in that you might see in a market a market

Snapshot of RIGHT Snapshot of RIGHT NOW!NOW!

This demand curve goes DOWN!

Movement on red line on demand curve means there has beena change in PRICE ONLY. There is ONE curve (line)

If $50, quantity demanded =__If $50, quantity demanded =__ If $30, quantity demanded =___If $30, quantity demanded =___ If $5, quantity demanded= ___If $5, quantity demanded= ___

Demand Curve

Law of DemandLaw of Demand The Law of Demand states that the The Law of Demand states that the

quantity demanded of a good or quantity demanded of a good or service varies inversely with its price.service varies inversely with its price.

quantity quantityprice demanded price demanded

If price goes up, demand goes ______________.If price goes down, demand goes _____________.

Cost and demand areinversely proportional.

Market Demand CurveMarket Demand Curve A market demand curve shows A market demand curve shows

the quantity demanded by the quantity demanded by everyone who is interested in everyone who is interested in purchasing the product.purchasing the product.

Example: buying a new laptopExample: buying a new laptop

If the tickets costs $30, then ________ people want it.At $30, ___ people will demand (WANT) that quantity.

If the tickets cost $25, then ________ people want it.At $25, ___ people will demand (WANT) that quantity.

Demand curve for Tiger Baseball Tickets…

If the tickets costs $15, then ________ people want it.At $15, ___ people will demand (WANT) that quantity.

Marginal UtilityMarginal Utility

Marginal utility Marginal utility is the extra is the extra enjoyment that a person gets enjoyment that a person gets from getting one more!from getting one more!

YES! One more sucker!!!YES! One more sucker!!!

Extra lollipops bring Erick extra utility!

Diminishing Marginal UtilityDiminishing Marginal Utility The principle of diminishing The principle of diminishing

marginal utility means that the marginal utility means that the enjoyment we get from more enjoyment we get from more decreases.decreases.

NOT ANOTHER HOT DOG!!! NOT ANOTHER HOT DOG!!!

Think of eating contests or block days at KHS!

Section 2 Section 2 Factors Affecting DemandFactors Affecting Demand

When there is a change in a peopleWhen there is a change in a people’’s s willingness and ability to buy, it is because willingness and ability to buy, it is because of 2 reasons: of 2 reasons:

1. Change in 1. Change in QUANTITYQUANTITY DEMANDED DEMANDED

OR OR

2. CHANGE IN 2. CHANGE IN DEMANDDEMAND

Change in Quantity DemandedChange in Quantity Demanded A A change in quantity demanded change in quantity demanded is a is a

movement ALONG the demand curve that movement ALONG the demand curve that shows ….shows ….

a a change in the quantity change in the quantity of the product of the product purchasedpurchased WHY? WHY?

change in change in PRICEPRICE..

Examples:1. Income effect2. Substitution

1. Income Effect1. Income Effect NO INCREASE IN YOUR INCOME NO INCREASE IN YOUR INCOME ($ earned)…..($ earned)…..

If If priceprice then a person feels they can then a person feels they can buy morebuy more

If If priceprice then a person feels they cannot then a person feels they cannot buy as muchbuy as much

If he has more money from winning the lottery, what will the effect be on his spending?

Income: $100 a weekWant gas for carIf gas price the person buys (more/less) gas?If gas price the person buys (more/less) gas?

2. Substitution Effect2. Substitution Effect The substitution effect is the change in quantity demanded The substitution effect is the change in quantity demanded

because of a change in the price of an item. because of a change in the price of an item. Example – Substituting a concert ticket for a CDExample – Substituting a concert ticket for a CD Will a person buy more CDs or concert tickets?Will a person buy more CDs or concert tickets?

CD $12.99 Concert Ticket $34.75

Mississippi mud pie $3Severn sludge souffle $5

Change in Demand- a SHIFT in DemandChange in Demand- a SHIFT in Demand A change in demand happens A change in demand happens

because people are now willing to because people are now willing to buy different amounts of the product buy different amounts of the product at the same prices.at the same prices.

A CHANGE IN DEMAND WILL A CHANGE IN DEMAND WILL RESULT IN A NEW DEMAND RESULT IN A NEW DEMAND CURVE. (oh shift!) CURVE. (oh shift!)

There are 2 lines.

Changes in DemandChanges in Demand

Original: price $10,……….Quantity demanded = _____

New Demand price $10………..Quantity demanded = ______

What ChangesDemand?

1.Consumer income –$$$ earned

2. Consumer tastes - preferences

3. Substitutes– Pepsi for Coke

4. Complements – buns for hotdogs 6. Change in

expectations

5. Change in the number of customers PRICE????

NO NO NO

Consumer IncomeConsumer Income

Changes in consumer income Changes in consumer income can cause a change in demand.can cause a change in demand.

Example – you get a raise or Example – you get a raise or you lose your jobyou lose your job

I can buy (more/less) I can by (more/less)

Consumer TastesConsumer Tastes

Consumers Consumers do not always do not always want the want the same thing.same thing.

Example – Example – change in change in fashion, style, fashion, style, the the development development of new of new productsproducts

More on Changing Tastes…More on Changing Tastes…

Changing tastes shift Changing tastes shift demand curves (and can demand curves (and can actually be quite amusing actually be quite amusing after a few years!).after a few years!).

SubstitutesSubstitutes

A change in A change in the price the price of of related related products products can can cause a cause a change in change in demand. demand.

SubstitutesSubstitutes can be used can be used in place of in place of other other products. products.

$2.75

$2.00

ComplementsComplements Related goods Related goods are known as are known as

complements because the use complements because the use of one increases the use of the of one increases the use of the other.other.

Example – peanut butter and Example – peanut butter and jelly, hotdogs and hotdog bunsjelly, hotdogs and hotdog buns

With cereal, you must buy______________.

With a hot dog, you must buy_________ and ____________.

ElasticityElasticity

Elasticity is the what Elasticity is the what happens when a happens when a dependent variable dependent variable such as such as quantityquantity

responds to a change in responds to a change in an an independent independent variable variable such as such as price.price.

Pajama bottoms

Dependent variable: qty.

Inde

pend

ent

varia

ble

$$$

$

Independent variable: $Dependent variable: what happens?

If there is a change in price $$$……

Then the quantity demanded how much want)changes

IF THEN

Demand ElasticityDemand Elasticity Demand Elasticity is how much a change Demand Elasticity is how much a change

in price causes a change in the quantity in price causes a change in the quantity demanddemand

High pricelow priceDemand change- (quantity want)big changesmall changelittle change

ELASTIC

INELASTICHigh pricelow priceDemand change- (quantity want)big changesmall changelittle change

ElasticElastic

““ElasticElastic”” is when a is when a change in price causes change in price causes a larger change in a larger change in quantity demanded.quantity demanded.

Example:Example:Beans in summer $2.00Beans in summer $2.00People buy (more/less)People buy (more/less)

Beans in winter $4.00Beans in winter $4.00People buy (more/less)People buy (more/less)

Inelastic DemandInelastic Demand Inelastic means that a change in price Inelastic means that a change in price

causes a smaller change in the quantity causes a smaller change in the quantity demanded.demanded.

People need medicine. Will continue buy if price is low. Will continue to buy if price is high.

Unit Elastic DemandUnit Elastic Demand

Unit elastic means that a given change in Unit elastic means that a given change in price causes a proportional (equal) change price causes a proportional (equal) change in the quantity demanded. (45˚ angle)in the quantity demanded. (45˚ angle)

Price increases by $2Quantity increases by 1

What determines What determines demand elasticity?demand elasticity?

Can the purchase be delayed?Can the purchase be delayed? (can I buy it later?)(can I buy it later?)

Are adequate substitutes available? Are adequate substitutes available? (Snickers candy instead of Milky Way?)(Snickers candy instead of Milky Way?)

Does the purchase use a large portion of Does the purchase use a large portion of income?income?

( I have been saving for a new phone for a long time. Do I want ( I have been saving for a new phone for a long time. Do I want to use all of my savings for the phone and have nothing left?)to use all of my savings for the phone and have nothing left?)