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Chapter 4: Demand
<ul><li>Why would the broker recommend pitchforks? </li></ul><ul><li>Would the pitchfork producers benefit from this? </li...
What is Demand? <ul><li>How do we account for buying a product? </li></ul><ul><li>What is marginal utility? </li></ul><ul>...
What is Demand? <ul><li>The desire and willingness to pay for a product. </li></ul><ul><li>Firms provide us with goods and...
Microeconomics <ul><li>Deals with the basic unit in regards to economic activity.  </li></ul><ul><li>Economists are going ...
Demand Schedules
Individual vs. Market curves <ul><li>Individual curves show demand for only one in regards to a single product. </li></ul>...
Market curves <ul><li>The market curve represents the demand of a product by everyone. </li></ul><ul><li>Schedules will us...
The Law of Demand <ul><li>All of these concepts contribute to the law of demand. </li></ul><ul><li>The law states that the...
Law of Demand ct’d <ul><li>The inverse relationship between P & Q is something that we find in the market.   When the pric...
Demand and Marginal Utility <ul><li>Marginal utility is important because it explains so much about the demand of products...
Cartoon Analysis 4.1
<ul><li>D 4.  </li></ul><ul><li>C </li></ul><ul><li>A </li></ul>Criticizes business for overcharging, stockholders, execut...
Factors Affecting Demand <ul><li>What causes changes in demand? </li></ul><ul><li>What are these factors? </li></ul><ul><l...
Changes in Quantity Demanded <ul><li>There are several factors that affect demand in the market. </li></ul><ul><li>Income ...
Income effect <ul><li>When prices drop and you have money, you will buy it. </li></ul><ul><li>If you are broke then you wi...
Substitution effect <ul><li>This is where consumers substitute a good/service for a relatively similar one for a cheaper p...
Changes in Demand <ul><li>There are six major factors that affect the demand of a product. </li></ul><ul><ul><li>Consumer ...
Consumer Income <ul><li>When your income goes up, you can afford more stuff and you will buy it. </li></ul>
Consumer Tastes <ul><li>Not everyone wants the same stuff.  This also plays a major role in the demand of a product.  </li...
Substitutes and Complements <ul><li>Changes in price in related products will cause demand to change. </li></ul><ul><li>Su...
Expectations <ul><li>The speculations of consumers will directly affect the demand curve.  </li></ul><ul><li>If consumers ...
Number of Consumers <ul><li>Businesses will play the numbers game . </li></ul><ul><li>The more consumers, the better chanc...
Elasticity of Demand <ul><li>What is elasticity? </li></ul><ul><li>How does elasticity affect the demand of a product? </l...
Elasticity <ul><li>Responsiveness </li></ul><ul><li>Demand elasticity refers to the changes in demand due to the change in...
Elastic Demand <ul><li>Change in (P) causes relatively larger changes in (Q) demanded. </li></ul><ul><li>If P is lower, Q ...
Demand Elasticity <ul><li>Demand tends to be more elastic if close substitutes are available. </li></ul><ul><li>Demand is ...
Inelastic demand <ul><li>Very little responsiveness to the change in P. </li></ul><ul><li>Most inelastic changes occur to ...
Unit Elasticity <ul><li>Occurs when the change in P will be proportional with changes in Q. </li></ul>
Section 3-15
Total Expenditures Test <ul><li>(P x Q)  = total expenditures. </li></ul><ul><li>Changes in expenditures depend on the ela...
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Demand

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  1. 1. Chapter 4: Demand
  2. 2. <ul><li>Why would the broker recommend pitchforks? </li></ul><ul><li>Would the pitchfork producers benefit from this? </li></ul><ul><li>3. What would you think would happen to the price of the pitchfork? </li></ul>
  3. 3. What is Demand? <ul><li>How do we account for buying a product? </li></ul><ul><li>What is marginal utility? </li></ul><ul><li>How do we graph demand? </li></ul>
  4. 4. What is Demand? <ul><li>The desire and willingness to pay for a product. </li></ul><ul><li>Firms provide us with goods and services based on the demand for that particular good/service. </li></ul>
  5. 5. Microeconomics <ul><li>Deals with the basic unit in regards to economic activity. </li></ul><ul><li>Economists are going to look at you buying products and why you buy them. </li></ul><ul><li>This will reveal how prices are determined and how you make your decisions. </li></ul>
  6. 6. Demand Schedules
  7. 7. Individual vs. Market curves <ul><li>Individual curves show demand for only one in regards to a single product. </li></ul><ul><li>This graph represents the schedule on the previous slide. </li></ul>
  8. 8. Market curves <ul><li>The market curve represents the demand of a product by everyone. </li></ul><ul><li>Schedules will usually be larger than those of the individual demand. </li></ul>
  9. 9. The Law of Demand <ul><li>All of these concepts contribute to the law of demand. </li></ul><ul><li>The law states that the quantity of goods (Q) demanded varies inversely with the price (P) of the product. </li></ul>
  10. 10. Law of Demand ct’d <ul><li>The inverse relationship between P & Q is something that we find in the market. When the price goes up, then demand usually goes down. </li></ul><ul><li>Common sense and simple observation are consistent with Law of Demand. </li></ul>
  11. 11. Demand and Marginal Utility <ul><li>Marginal utility is important because it explains so much about the demand of products. </li></ul><ul><li>Diminishing marginal utility is a prime example of this. </li></ul><ul><li>When we use more and more of the product, the newness wears off and we want less of it. </li></ul>
  12. 12. Cartoon Analysis 4.1
  13. 13. <ul><li>D 4. </li></ul><ul><li>C </li></ul><ul><li>A </li></ul>Criticizes business for overcharging, stockholders, executives, and employees for greed, rationalizing low-quality products and for irresponsibility toward the environment, conservatives for attacking any criticism of business, and the hypocrisy of business interests in seeking subsidies.
  14. 14. Factors Affecting Demand <ul><li>What causes changes in demand? </li></ul><ul><li>What are these factors? </li></ul><ul><li>How are you going to account for them on a graph? </li></ul>
  15. 15. Changes in Quantity Demanded <ul><li>There are several factors that affect demand in the market. </li></ul><ul><li>Income has a huge effect. </li></ul><ul><li>Substitution impacts that market to. </li></ul>
  16. 16. Income effect <ul><li>When prices drop and you have money, you will buy it. </li></ul><ul><li>If you are broke then you will not buy as much of the product . </li></ul>
  17. 17. Substitution effect <ul><li>This is where consumers substitute a good/service for a relatively similar one for a cheaper price. </li></ul><ul><li>Examples would be if movie theaters cost $7 and the rental place costs $3, You will be more likely to stay in and rent. </li></ul>
  18. 18. Changes in Demand <ul><li>There are six major factors that affect the demand of a product. </li></ul><ul><ul><li>Consumer Income </li></ul></ul><ul><ul><li>Consumer Tastes </li></ul></ul><ul><ul><li>Substitutes and Complements </li></ul></ul><ul><ul><li>Changes in Expectations </li></ul></ul><ul><ul><li>Number of Consumers </li></ul></ul>
  19. 19. Consumer Income <ul><li>When your income goes up, you can afford more stuff and you will buy it. </li></ul>
  20. 20. Consumer Tastes <ul><li>Not everyone wants the same stuff. This also plays a major role in the demand of a product. </li></ul><ul><li>When a product is successfully advertised, its popularity increases and people buy more of it. </li></ul>
  21. 21. Substitutes and Complements <ul><li>Changes in price in related products will cause demand to change. </li></ul><ul><li>Substitutes are similar products that will either benefit or not from changes in demand. </li></ul><ul><li>Complements can cause demand shifts as well. </li></ul>
  22. 22. Expectations <ul><li>The speculations of consumers will directly affect the demand curve. </li></ul><ul><li>If consumers hear about some new kind of technology or the development of a new product. </li></ul><ul><li>They will, in turn, buy or hold off on specific products. </li></ul>
  23. 23. Number of Consumers <ul><li>Businesses will play the numbers game . </li></ul><ul><li>The more consumers, the better chance that the demand will go up. </li></ul>
  24. 24. Elasticity of Demand <ul><li>What is elasticity? </li></ul><ul><li>How does elasticity affect the demand of a product? </li></ul><ul><li>What factors determine demand elasticity? </li></ul>
  25. 25. Elasticity <ul><li>Responsiveness </li></ul><ul><li>Demand elasticity refers to the changes in demand due to the change in price. </li></ul>
  26. 26. Elastic Demand <ul><li>Change in (P) causes relatively larger changes in (Q) demanded. </li></ul><ul><li>If P is lower, Q will be higher </li></ul><ul><li>Increase in P = decrease in Q . </li></ul>
  27. 27. Demand Elasticity <ul><li>Demand tends to be more elastic if close substitutes are available. </li></ul><ul><li>Demand is also more elastic if the good is a luxury, rather than a necessity. </li></ul><ul><li>Buyers have substantial time to react to price change. </li></ul>
  28. 28. Inelastic demand <ul><li>Very little responsiveness to the change in P. </li></ul><ul><li>Most inelastic changes occur to products that consumers value very little. (Ex. salt, sugar, etc.) </li></ul>
  29. 29. Unit Elasticity <ul><li>Occurs when the change in P will be proportional with changes in Q. </li></ul>
  30. 30. Section 3-15
  31. 31. Total Expenditures Test <ul><li>(P x Q) = total expenditures. </li></ul><ul><li>Changes in expenditures depend on the elasticity of a demand curve— </li></ul><ul><ul><li>if change in price & expenditures move in opposite directions on the curve-- demand is elastic </li></ul></ul><ul><ul><li>if they move in the same direction-- demand is inelastic </li></ul></ul><ul><ul><li>if there is no change in expenditures-- demand is unit elastic. </li></ul></ul>
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