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