Transcript change in - Humble ISD

1. Describe & illustrate the concept of demand.
2. Explain how demand & utility are related.
3. Explain what causes a change in quantity
demanded
4. Describe the factors that can cause a change
in demand.
5. Define & analyze the elasticity of demand for a
product.
• demand
demand schedule
• demand curve
Law of Demand
• marginal utility
• diminishing marginal utility
• change in quantity demanded
• income effect
substitution effect
• change in demand
substitutes
• complements
elasticity
• demand elasticity
elastic
• inelastic
unit elastic
• Demand is NOT just the desire
to have or own a certain product
• DEMAND is the DESIRE,
ABILITY, and WILLINGNESS to
BUY a product
– When I want or need something,
do I demand it?
– No, I must buy it.
• A demand schedule is a listing that
shows the number demanded at
different prices (table form)
Price
Quantity Demanded
• A demand curve shows the quantity
demanded at each & every possible
price that may prevail in the market
(line graph form)
• The line is ALWAYS downward sloping
– Lower quantity will be demanded at
higher prices
– Higher quantity demanded at lower prices
• A change in price reflects movement
along the curve (change in quantity
demanded)
• There is an inverse
relationship between price &
quantity demanded
– If price increases, demand
decreases
– If price decreases, demand
increases
• Utility is the amount of usefulness or
satisfaction someone gets from the
use of a product
• Marginal utility is the extra
satisfaction one gets from getting one
more unit of the product
• Diminishing marginal utility is the
decreasing satisfaction as additional
units of a product are acquired
• A change in price will cause a change in
the quantity demanded, which is
represented by movement along the
demand curve
• This may occur because of 2 reasons:
1. The Income Effect: change in price alters
consumers’ real income (prices drop, you have more income to spend)
2. The Substitution Effect: change in the relative
price of the product (as compared with prices of
other products)
• Together, they explain why consumers
increase consumption when prices drop
If a change in demand
is NOT caused by a
change in PRICE, the
entire demand curve
will shift = CHANGE
IN DEMAND
• People are now willing to buy different
amounts of the product at the same
prices
• Entire demand curve shifts
– To the RIGHT shows an increase in
demand
– To the LEFT shows a decrease in demand
• Change in demand results in an
entirely new curve
Factors that cause a change in
demand (other than price):
Write at least 3 facts for each.
1. Consumer Income
2. Consumer Tastes
3. Prices of Related Goods
 Substitute Goods
 Complementary Goods
4. Change in Expectations
5. Number of Consumers
• Elasticity is an important causeand-effect relationship in economics
• Demand elasticity is the extent to
which a change in price causes a
change in the quantity demanded
• Will a change in price cause a
relatively larger, a relatively
smaller, or a proportional change in
quantity demanded?
• Demand is ELASTIC: a change in
price causes a relatively larger
change in quantity demanded
• Demand is INELASTIC: a change
in price causes a relatively smaller
change in quantity demanded
• Demand is UNIT ELASTIC: a
change in price causes a
proportional change in quantity
demanded
What determines demand elasticity?
Can the purchase be delayed?
Yes: tends to be elastic
No: tends to be inelastic
Are adequate substitutes available?
Yes: tends to be elastic
No: tends to be inelastic
Does the purchase use a large portion
of income?
Yes: tends to be elastic
No: tends to be inelastic