Chapter 3 Demand

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Chapter 3 Demand

  1. 1. Chapter 3: Demand
  2. 2. Wants vs. Demand <ul><li>Wants are unlimited </li></ul><ul><li>Demand is affected by cost </li></ul>
  3. 3. Demand <ul><li>Economically Speaking: Qty of a good or service one is willing and able to buy at various prices </li></ul><ul><ul><li>If you are unwilling and/or unable to buy, you can’t demand </li></ul></ul><ul><li>Law of Demand: People will buy more at a lower cost , and less at a higher cost </li></ul><ul><li>Price Effect: How Law of Demand affects us - we’ll buy more at a lower price than a higher price. </li></ul><ul><ul><li>( Prices = incentives, disincentives) </li></ul></ul>
  4. 4. How to Graph Demand: <ul><li>Market Demand : All possible P,Q combinations! </li></ul>Price (P) Quantity (Q) Demand (D)
  5. 5. What are considerations of demand? <ul><li>Buying Power: “Bang for the Buck” </li></ul><ul><li>Diminishing Personal Value: “What’s more important to you?” </li></ul><ul><li>Diminishing Marginal Utility: “You CAN have too much of a good thing!” </li></ul><ul><ul><li>Marginal: econ-speak for “extra” </li></ul></ul><ul><ul><li>Utility: econ-speak for “happiness, satisfaction” </li></ul></ul><ul><li>Substitutes: “What else can you buy instead?” </li></ul>
  6. 6. Elasticity of Demand <ul><li>Elasticity : How much does a change in price affect the quantity demanded? </li></ul><ul><ul><li>Elastic: A Price ∆ can cause an appreciable ∆ in Qty demanded. </li></ul></ul><ul><ul><ul><li>Price Effect is Strong - “Luxury” </li></ul></ul></ul><ul><ul><li>Inelastic: A price ∆ does not really cause a ∆ in Qty demanded </li></ul></ul><ul><ul><ul><li>Price Effect is Weak - “Necessity” </li></ul></ul></ul><ul><ul><li>Quick Math Test: An  in Price =  in Qty </li></ul></ul><ul><ul><ul><li>If the Revenue (P * Q) increases, then inelastic </li></ul></ul></ul><ul><ul><ul><li>If the Revenue (P * Q) decreases, then elastic </li></ul></ul></ul>
  7. 7. What Affects Elasticity? <ul><li>Availability of Substitutes </li></ul><ul><ul><li> substitutes =  elasticity </li></ul></ul><ul><li>% of Budget </li></ul><ul><ul><li> % of budget =  elasticity </li></ul></ul><ul><li>Time </li></ul><ul><ul><li> time to adjust =  elasticity </li></ul></ul><ul><ul><li> time to adjust =  elasticity </li></ul></ul>
  8. 8. Price Effect vs. Change in Demand <ul><li>Market Demand is the combination of all P and Q demanded </li></ul><ul><li>Various points along demand curve = Price Effect </li></ul><ul><li>A Change in Demand occurs when: </li></ul><ul><ul><li>People demand  Q at all P </li></ul></ul><ul><ul><li>People demand  Q at all P </li></ul></ul>
  9. 9. A Demand Curve Shift P Q D 1 D 2 D 3 D 1 = Original Demand D 2 = Increase in Demand D 3 = Decrease in Demand
  10. 10. What Causes A Demand Shift? <ul><li>Change in Income </li></ul><ul><li>Prices or Availability of Substitutes </li></ul><ul><li>Prices or Availability of Complements </li></ul><ul><li>Change in Weather or Season </li></ul><ul><li>Change in # of Buyers </li></ul><ul><li>Change in Styles, Tastes, Habits </li></ul><ul><li>Change in Expectations </li></ul>

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