Transcript Demand Unit 2: Supply & Demand Chipotle Burritos The World

Demand
Unit 2: Supply & Demand
Chipotle Burritos
The World Famous
Donut Simulation
Demand
Demand is:
The quantity of goods a
consumer is willing and able to
purchase at various prices
Demand: Able
To have
demand, you
must be
ABLE to
purchase it
You may want a palace, but you don’t have
demand for it since you are not ABLE to buy it.
Demand: Willing
To have
demand, you
must be
willing to
purchase it
If you don’t want to buy it, you don’t have demand.
The Law of Demand
When the price increases, the
quantity demanded decreases.
When the price decreases, the
quantity demanded increases.
Law of Demand
Inverse relationship between price
& quantity demanded
P Qd
P Qd
Demand Graph
Price
D
Quantity
Demand - Down
The
demand
curve is
downward
sloping
Price
D
Quantity
Why is Demand
Downward Sloping?
Income Effect
Substitution Effect
Law of Diminishing
Marginal Utility
Income Effect
When prices rise, a
consumer is less ABLE
to purchase something.
The opposite is true.
P Qd
P Qd
Substitution Effect
If there’s a substitute
for a good, you will
be less willing and
able to buy the good
if the substitute is
cheaper.
If Coca-Cola becomes more expensive, you’ll
buy less of it since you can substitute Pepsi
for it.
Marginal Utility
Utility = usefulness
Marginal Utility
The usefulness of one additional unit
The satisfaction we get from consuming an
additional unit of a product
Law of Diminishing
Marginal Utility
Satisfaction decreases as
consumption of a
particular good increases
Goods lose usefulness
each time you
consume/purchase
another
Demand Schedule
Price
Quantity Demanded
$2
5
$4
4
$6
3
$8
2
$10
1
Demand Graph
$10
Price
Point A:
At $8, the
quantity
demanded is 2
A
$8
$6
$4
D
$2
1
2
3
4
Quantity
5
Demand: Price Changes
$10
Price
Point B:
When the price is
lowered to $6, the
quantity
demanded
increases to 3
D
A
$8
B
A price
$6
change
means there
is movement $4
along the
$2
demand
curve
1
2
3
4
Quantity
5
Review Questions
What is demand?
What is the Law of Demand?
What three things cause demand to have a downward slope?
What is the Law of Diminishing Marginal Utility?
What is the income effect?
What is the substitution effect?
On a graph, how do we show a change in quantity demanded
due to a change in price?
Changes in Quantity Demanded
1) The price of a latte at Starbucks is raised from $4 to
$8. Will that cause an increase or decrease in the
quantity demanded? Why?
2) Movie tickets at Edwards Cinema were $11 last week.
Today, they lowered the price of a ticket to $5.50. Will
that cause an increase or decrease in quantity
demanded? Why?