Transcript Chapter 20, Section 1 What is Demand? (448-451)

Chapter 21
Demand!
I.
An Introduction to Demand (448-449)
A. Supply and demand work together to set
prices.
B. Demand- desire, willingness, ability to buy
a good or service. (The amount consumers want)
C. The demand curve slopes downward.
***It shows that people are normally willing to buy
less of a product at a high price than at a low
price. ***
II.
Individual Market vs. Demand
A. Market Demand- the total demand of
all consumers for a product or service.
B. Utility- the pleasure, usefulness, and
satisfaction a product gives us.
*** A Particular product may have little to no
utility to some people***
***Say you eat a slice of pizza. Because you
are most hungry when you eat the 1st slice,
this slice gives you the most utility, or
satisfaction. As you grow less hungry,
each additional slice provides less
marginal utility, or less additional
satisfaction.***
C. Diminishing Marginal Utility- says our
additional satisfaction tends to go down as
we consume more units!
***Suppose you have watched two movies
today. What does the principal of
diminishing marginal utility predict about
your willingness to rent another?***
III. Changes in Demand
A. Income changes also affect demand.
$80,000
OR
$25,000
B. Consumer’s taste in a product
changes.(Advertising influences, “Must Buy”)
C. Expectations change demand. (Technology)
D. The number of consumers in an area can
change demand. (Additional troops to Base, Deployments)
E) Changes in substitutes (Competing products)
Substitute Goods- Used in place of one another
If price changes for one then demand will change for the other
EX. Butter is a substitute for margarine. If price of margarine
increases then people will substitute butter for the higher
priced margarine.
F) Changes in Complements (Complementary Goods)
(Products used together)
IV.Elasticity of Demand
A. When prices rise, demand goes down.
B. Demand Elasticity- The extent to which a change in price
causes a change in quantity demanded.
Elastic Demand: each change in
price causes a relatively larger %
change in quantity demanded.
Items tend to be elastic if:
Expensive
If attractive substitutes are available
Inelastic DemandChanges in price have little effect on quantity demanded
Inelastic if:
No real substitutes available
Necessary item
Mini Quiz!!!
1. When prices go up
what happens to the
demand?
2. When prices go down
what happens to the
demand?
3. What does the utility
of a product mean?
4. Interpret this Demand
Chart...What is the
quantity of demand at
$5???