Economics

Chapter 4: Demand

Today’s Agenda

• Begin Chapter 4 Demand• Homework– Complete Questions 1-7 by Friday

By the end of this lesson, I “demand” that you be able to:

• Define Demand• Define elasticity and

inelasticity• Explain what factors affect

demand• Define diminishing marginal

utility

What is Demand?• Amount of a good or service

that consumers are willing and able to buy

• Influenced by– Price• Consumers willingness to sacrifice

– Income• Consumer must be able to afford it

– Substitution• Alternate good or service available

– Taste• Consumer must like the good or

service

What does the Law of Demand say?• When price goes

UP, demand goes DOWN

• When price goes DOWN, demand goes UP

• Demand Curve– Economic model

illustrating law of demand

What is the elasticity and inelasticity of demand?

• Elastic Demand– State in which a price

increase has a major impact on demand

– Rise in price of Doritos will greatly affect demand

• Inelastic Demand– State in which price

increase has little impact on demand

– Rise in price of gasoline will not greatly affect demand

Factors that Decide if Demand is Elastic or Inelastic• Luxury or necessity– Luxury – want that is nice but not necessary• smartphone*, Camaro, tanning salon, shore

house• Highly elastic demand

– Necessity- needed to live • Food, water, shelter, healthcare• inelastic demand

• Substitutions– Can the good or service be replaced with something

else– Instead of Doritos, Fritos – Something easily substituted is highly elastic

• Consumer Income– How much money consumer makes affects demand

Is this Hollister shirt elastic or inelastic? Explain why.

Today’s Agenda

• Finish Chapter 4 Slide Show• Complete Crossword Puzzle Review• Quiz on Chapter 3-4 next week (Wed or

Thursday)

Review

• What is the term for the amount of a good or service that consumers are willing and able to buy?

• What is the term for demand in which a change is price greatly affects demand?

• What is the term for demand in which a change in price does not affect demand?

What factors cause demand to change?• Income

– More income allows more demand• Substitution

– if there is an alternate– Coke: Pepsi– Comcast: Verizon– Bottled Water: Tap Water

• Weather– Winter Storm: Snow shovels, salt– Summer time: Sunglasses, shorts

• Population– More people means more demand– Finding a hotel room during 4th of July down the shore

• Taste– What consumers like changes– Cigarettes, cassette players

• Utility – More useful/satisfying a product the greater its demand

What is Diminishing Marginal Utility?• Utility – Usefulness and satisfaction

consumer gets from product– More utility greater the

demand• The more you like something,

the more you are willing to pay!

• Diminishing Marginal Utility– Point at which satisfaction

decreases with each additional

– Eventually each additional products is less satisfying