Transcript chapter_7_ppt_-_demand[1]

7-1 Notes
“The Law of Demand”
Demand:
How many goods and services
consumers will buy at various prices
• Effected by
– Willingness to
buy
– Ability to buy
• Individual demand
– your willingness
and ability to buy a
good
• Market demand –
all consumers
willingness and
ability to buy a
good
Law of Demanddemand for a product moves in the
opposite direction of its price
• When prices fall,
people buy more
– sales
• When prices
increase, people
buy less
– Airplane tickets
The Demand Schedule:
.
a table that list
the quantity of goods a person (individual) or
people (market) will buy at each price
Demand Schedules
Individual Demand Schedule
Market Demand Schedule
Price of a slice
of pizza
Quantity demanded per
day
Price of a slice
of pizza
Quantity demanded per
day
$.50
$1.00
$1.50
$2.00
$2.50
$3.00
5
4
3
2
1
0
$.50
$1.00
$1.50
$2.00
$2.50
$3.00
300
250
200
150
100
50
Reasons why demand and price have an
inverse relationship
•
Real income Effect
•
Substitution Effect
•
Diminishing Marginal
Utility
Why do businesses want to
figure out market demand?
• Know how much
to produce and
at what price to
maximize profits
Changes in demand on a
demand curve
•
•
If a good’s demand
increases, the demand
curve will shift to the
right because more
people are willing and
able to pay more
money for the good
If a good’s demand
decreases the demand
curve will shift to the
left
Causes of the demand curve to shift
right or left (increase or decrease)
•
•
•
•
•
Consumer income
Tastes
Substitutions
Populations
Complementary
goods
What effects consumer’s tastes?
Advertising, News Reports, Trends, and
Seasons
• What if people
tire of a product?
-Buy less and
demand curve
shifts left
Substitutes- Product used in place
of another
• Butter and
margarine
• Chicken and lamb
Complementary goods- Related Goods
that are often purchased together
• I-Pods- Covers,
Speakers, Head
Phones, etc…
• Gillette razor handles
and replacement
blades
Utility - the usefulness or satisfaction
from the consumption of a good
Diminishing Marginal
Utility- The more
you acquire the less
eager you will be to
buy more
Quantity Demanded v.
Demand
• Quantity
Demanded
– A change in
quantity demand
is caused by a
change in the
PRICE of the
good only
• Demand
– A change in demand
is caused by
something other
than price (tastes,
income, populations,
substitutes, and
compliments)