Transcript Marginal Utility – the extra usefulness or satisfaction people get from

Markets
• Markets – exchanges between buyers and
sellers.
• Supply – questions faced by sellers in
those exchanges are related to how much
to sell and at what price.
• Demand – questions faced by buyers –
the amount of goods and services
consumers are willing to buy at various
prices at a particular time and place.
The Law of Demand
• If all other things are equal, the higher the
price of a product or service, the less of it
people are willing to buy.
• The lower the price, the more people will
buy.
• Based on the connection between the
price of a good or service and the quantity
demanded.
Graphing the Law of Demand
• Demand Schedule – list that shows the
quantities demanded of a product a various
prices during a particular time period.
• Demand Curve – Each point on the graph shows
the quantity purchased at a particular price. The
line formed by connecting the points is called a
demand curve.
• Downward slope shows a negative relationshipas one variable increases, the other decreases.
Why Demand Rises and Falls
• Real Income Effect – what people can
actually buy with their money; if prices
rise and your income stays the same, you
are no longer able to buy as much as you
once did.
• Substitution Effect – when prices increase
people tend to choose a similar product in
their price range.
The Law of Diminishing
Marginal Utility(Returns)
• of Diminish – to grow smaller.
• Utility – usefulness of a product or the amount of
satisfaction it provides.
• Marginal Utility – the extra usefulness or satisfaction
people get from buying or using more of a product or
service.
• As people use more of a product or service, the
satisfaction they get from their additional purchases
declines.
• People not willing to pay as much for the second, third,
or fourth.
• When it gets to the point where the marginal utlility is
less than the price the item, he or she stops buying.
Vocabulary
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Market
Supply
Demand
Law of Demand
Law of Diminishing
Marginal Utility
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Demand Schedule
Demand Curve
Real Income Effect
Substitution Effect
Analyzing Market Demand
• A demand curve starts with preferences of
individual buyers.
• Points along the curve show your willingness
and abilityu to buy a good or service at a
particular price.
• Market Demand – total of all of the individual
demands with a market.
• When curve shifts to the left –decrease in
demand
• Shifts to the right – increase in demand.
Causes of Shifts in Demand
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Price
Average Income
Changes in Population
Changes in Complementary products; complements are
products or services that are used together.
• Substitutes
• Changes in personal preferences.
• Special influences.
• Fads
• Expectations about the future.
Putting It All Together
• Work with a partner to list the brand
names of ten goods you use.
• Next, try to identify a complementary
product and a substitute for each. Then
predict what would happen to the demand
for your favorite item or brand and its
complementary products if the item
doubled in price.
Demand Elasticity
• Elasticity - Consumers are more responsive to changes
in the prices of some goods and services than others.
• Measure elasticity of demand by how sensitive
consumers are to a change in price.
• Elastic – when a specific change in price causes a
relatively large change in the quantity demanded.
• Inelastic – if a change in price does not bring much of a
change in the quantity demanded.
Effects of Elasticity
• Elastic - some products are more elastic because they
have more substitutes than others.
• Inelastic – products that have few substitutes tend to be
inelastic.
• If the cost of an item represents a large percentage of a
consumer’s real income, a change in the price will have
a large effect on demand.
• Time – some items are inelastic in the short run, but
elastic in the long run.
• Elasticity closely related to competition. The more
choices the more competitive.
Putting It All Together
• List some items that you purchase
regularly. Which are elastic in demand?
Which are inelastic in demand?
• Explain how you decided which was
which?