Transcript 3.1 Demand
Demand & Utility
TOPIC: Demand & Utility
DO NOW:
Go to the board and write how much you
would be willing to pay for each item.
DEMAND
The ability and How
willingness
paywe’re
the
do we knowtowhat
current market price for WILLING
a good/service.
to pay for something?
Define:
1) Ability,
3) market price,
2) willingness,
4) good/service.
UTILITY
The satisfaction derived from consuming a
good/service.
(It is ambiguously measured)
Desert story.
Marginal Utility:
Satiation Point:
the extra utility gained from
The point on a utility function
consuming one additionalUtility Graph
where utility is maximized.
unit of a good or service.
Utility
50
40
Disutility
30
20
10
0
-10 0
-20
1
2
3
4
# of Glasses of H2O
5
6
7
Back to the Do Now…
Would you still buy it if…
The perfect jeans cost $1000?
Your dream house was in war torn Iraq or
communist North Korea?
You knew your healthcare coverage would be
revoked if you got cancer or any other long
term illness.
What’s the point?
When (perceived) utility changes, demand for
the good/service changes.
Committee Work:
You live in NYC and have just started a new
company.
What is the name of your company?
What good/service are you making?
Why will people want to buy your good/service?
List at least 5 factors (internal & external) that
may change the perceived utility of the
product/service you offer.
How do you think the change in utility will impact
the demand for your good/service?
Present and debate this with each other.