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Econ Ch4 Demand

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Econ Ch4 Demand

  1. 1. Chapter DEMAND 4
  2. 2. Chapter Objectives <ul><li>Students will learn: </li></ul><ul><li>The economic law of demand and understand how it applies to real-life scenarios. </li></ul><ul><li>The causes of shifts in demand. </li></ul><ul><li>That a change in price sometimes causes a large change in demand (elastic demand) and sometimes causes only a small change (inelastic demand). </li></ul>
  3. 3. Defining Demand <ul><li>Market: exchange between buyers and sellers of goods and services. </li></ul><ul><li>Supply : the amount of goods and services that sellers are willing to sell at various prices at particular times. </li></ul><ul><li>Demand : the amount of goods and services consumers are willing to buy at various prices at particular times. </li></ul>
  4. 4. The Law of Demand <ul><li>“ If all other things are equal, the higher the price of a product or service, the less of it people are willing to buy .” </li></ul><ul><li>The reverse is also true: </li></ul><ul><ul><li>“ The lower the price of a product or service, the more of it people are willing to buy .” </li></ul></ul>
  5. 5. Graphing Demand <ul><li>Demand schedule: list of quantities demanded at various prices. </li></ul><ul><li>Demand curve: points on a graph connected by line. </li></ul>
  6. 6. NOTICE: In what direction does the demand curve go?
  7. 7. Why Demand Rises and Falls <ul><li>Real income: value of income based on prices </li></ul><ul><li>Real income effect: when prices go up, people can afford less. </li></ul><ul><li>Substitution effect: when prices go up, people choose a similar product instead. </li></ul>
  8. 8. Law of Diminishing Marginal Utility <ul><li>Diminishing : shrinking, growing smaller </li></ul><ul><li>Utility : usefulness, amount of satisfaction </li></ul><ul><li>Marginal utility: extra usefulness you get from using more of a product or service </li></ul><ul><li>“As people use more of a product or service, the satisfaction they get from their additional purchases declines.” </li></ul>
  9. 9. How will this effect demand? <ul><li>A sale on DVDs </li></ul><ul><li>A price drop for VCRs </li></ul><ul><li>A rise in the price of movie tickets. </li></ul>
  10. 10. Changes in Demand <ul><li>Market Demand : the total of all individual demands in a market </li></ul><ul><li>Causes of shifts in demand: </li></ul><ul><ul><li>Average income </li></ul></ul><ul><ul><li>Population </li></ul></ul><ul><ul><li>Complements </li></ul></ul><ul><ul><li>Substitutes </li></ul></ul><ul><ul><li>Personal Preferences </li></ul></ul><ul><ul><li>Special Influences </li></ul></ul><ul><ul><li>Future Expectations </li></ul></ul>
  11. 13. Demand Elasticity <ul><li>Elasticity : the responsiveness of one variable to change in another variable </li></ul><ul><li>Price elasticity of demand: changes in demand as a result of changes in price. </li></ul>
  12. 15. <ul><li>DEMAND: </li></ul><ul><ul><li>Elastic : large change </li></ul></ul><ul><ul><li>Inelastic : small or no change </li></ul></ul>
  13. 16. Effects of Elasticity <ul><li>Inelastic </li></ul><ul><li>Few substitutes </li></ul><ul><li>Small % of real income </li></ul><ul><li>Low competition </li></ul><ul><li>Elastic </li></ul><ul><li>More substitutes </li></ul><ul><li>Large % of real income </li></ul><ul><li>High competition </li></ul>TIME IS A FACTOR
  14. 17. Homework: <ul><li>Make a list of 5 items you buy regularly. </li></ul><ul><li>Think of any substitutes and complements for the items. </li></ul><ul><li>Decide whether they are elastic or inelastic. Explain why. </li></ul><ul><li>Due Tomorrow. </li></ul>1. 2. 3. 4. 5. Elasticity? Complement Substitute Item

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