Transcript Law of Demand

Bell Ringer!!!
 Tell me a story about a time you got a REALLY good deal on an item
you bought.

What was the item, original price, circumstances of the price you paid, etc.?
In the Chips Simulation Debrief
 Take out a sheet of paper!
 Answer the following questions based on your experience during the
simulation:
1.
2.
3.
4.
What was the goal of buyers?
What was the goal of sellers?
How was a transaction price determined?
From round one to round four, did the amount of time it took you to make a
transaction increase or decrease?

5.
Why do you think this is?
Explain which concepts from this game can be applied to a free market system.
Dwight Schrute says:

“Fact: the demand for
Dunder-Mifflin paper is
low. I think this is
because people don’t
make as many paper
airplanes as they used
to.”
Understanding Demand
What is Demand?
 The willingness and ability of buyers to purchase different quantities of
a good at different prices during a specific time period
The Law of Demand
 As the price of a good increases, the quantity demanded of the good
decreases, and as the price of a good decreases, the quantity demanded
of the good increases

If P  then Qd 
If P  then Qd 
Where P = price and Qd = quantity demanded

BLACK FRIDAY!


Demand vs. Quantity Demanded
 Quantity demanded is the number of
units of a good purchased at a specific price
Buying Makes Me Happy!
 Utility is the quantity of satisfaction or happiness
you receive from a unit of good
The more utility you receive from a unit of a good, the
higher price you are willing to pay for it;
 The less utility you receive from a unit of a good, the
lower price you are willing to pay for it.

Law of Diminishing Marginal Utility
 Who likes CIRCUS PEANUTS?!?!?! I mean,
REALLY likes them…
Law of Diminishing Marginal Utility
 Experiment!
 Student eats 1st circus peanut and assigns # of utils
(happiness) he/she gained
 Student eats 2nd circus peanut and assigns utils
 Student eats 3rd…4th…87th…etc.
Why do P and Qd Move in Opposite Directions?
 The law of diminishing marginal utility states that as a person
consumes additional units of a good, eventually the utility gained from
each additional unit of good decreases


The first piece of pizza is the best!
Or your first private jet?
 Thus, individuals will buy larger quantities of a good only at lower
prices.

Girl eats her feelings (Investopedia video)

http://www.investopedia.com/video/play/law-of-diminishing-marginal-utility/
Law of Demand in Numbers
 The demand schedule is the numerical representation of the law of
demand
Price (in dollars)
Quantity demanded (in
units)
$4
1
3
2
2
3
1
4
Law of Demand in Pictures
 The demand curve is the graphical representation of the law of
demand

The standard practice in economics is to call the graphic representation of the
relationship between price and quantity demanded a demand curve—whether it is a
curve or straight line
Individual and Market Demand Curves
 An individual demand curve represents an
individuals demand
 A market demand curve shows the sum of all
the different individual demand curves added
together