Transcript Demand
Demand Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho What is Demand? • Concept Review • Microeconomics is the study of the economic behaviors and decisions of small units, such as individuals and businesses. • Chapter 4 Key Concept • Demand is the willingness to buy a good or service and the ability to pay for it. • Chapter Objective • Explain the Law of Demand and describe the factors that affect changes in demand. Economics: concepts and choices, 2011. Holt McDougal Section 1 Objectives Define demand and outline what the law of demand says. Explain how to interpret and create demand schedules and describe the role of market research in this process. Explain how to interpret and create demand curves. The Law of Demand • As the price of a good rises, the demand will decrease. As the price of a good decreases, the demand for the good increases. Economics: concepts and choices, 2011. Holt McDougal Demand Schedules Economics: concepts and choices, 2011. Holt McDougal Demand Curves Economics: concepts and choices, 2011. Holt McDougal Reviewing Key Concepts • Why does the demand curve slope downward? • How are price and quality demanded related? • List three products that you are familiar with the approximate price of each. Which of the products, if any, do you have a demand for? Consider the two requirements of demand as you answer the question. • Does quantity demanded always fall if the price rises? List several goods or services that you think would remain in demand even if the price rose sharply. Why does demand for those items change very little? Economics: concepts and choices, 2011. Holt McDougal Section 2 Objectives Determine a change in quantity demanded. Explain the difference between change in quantity demanded and change in demand. Determine a change in demand. Analyze what factors can cause change in demand. What Factors Affect Demand? • Law of diminishing marginal utility. • The income effect • The substitution effect Economics: concepts and choices, 2011. Holt McDougal Demand and Supply Example: College Costs Economics: concepts and choices, 2011. Holt McDougal Economics: concepts and choices, 2011. Holt McDougal What Factors Affect Demand? • Change in quantity demanded • Changes along the curve • A change in price. • Change in Demand • Income • Normal goods • Inferior goods • Market Size • Consumer Tastes • Consumer Expectations • Substitute Goods • Complementary Goods Economics: concepts and choices, 2011. Holt McDougal Critical Thinking • What features of demand curves is explained by the law of diminishing returns? • How does the income effect influence consumer behavior when prices rise? • Why might an increase in income result in a decrease in demand? • The U. S. government has been used many strategies to reduce smoking. It banned television ads for cigarettes, ran public service messages about the health risks of smoking, and imposed taxes on cigarettes. Which factors that affect demand was the government trying to influence? Economics: concepts and choices, 2011. Holt McDougal Section 3 Objectives Define elasticity of demand. Identify the difference between elastic and inelastic demand. Define unit elastic. Determine how total revenue is used to identify elasticity. What is Elasticity of Demand? • Elasticity of Demand • Elastic • Inelastic • Unit elastic What Determines Elasticity? Substitute Goods and Services Economics: concepts and choices, 2011. Holt McDougal Proportion of Income Necessities versus Luxuries Estimating Elasticity Table Salt Ice Cream Sports Car Gasoline Insulin Braces on Teeth Are there good substitutes? No Yes Yes No No No What proportion of income does it use? Small Small Large Small Small Large Is it a necessity or a luxury? Necessity Luxury Luxury Necessity Necessity Luxury Conclusion Inelastic Elastic Elastic Inelastic Inelastic Elastic Economics: concepts and choices, 2011. Holt McDougal Calculating Elasticity of Demand Economics: concepts and choices, 2011. Holt McDougal Total Revenue Test • Elasticity of demand influences the amount of revenue businesses earn. • Total Revenue = P X Q • If total revenue increases after the price of a product drops, then the demand is elastic. • If total revenue decreases after the price is lowered, demand is considered inelastic. Economics: concepts and choices, 2011. Holt McDougal Total Revenue and Price Elasticity Economics: concepts and choices, 2011. Holt McDougal Calculating Elasticity of Demand Economics: concepts and choices, 2011. Holt McDougal Let’s Practice Economics: concepts and choices, 2011. Holt McDougal