Unit 2 ReviewUnit 2 Review

DemandDemand

• What is the term defined What is the term defined as the desire, willingness, as the desire, willingness, and ability to purchase a and ability to purchase a product at a particular product at a particular price?price?

• DemandDemand

What is the equation for What is the equation for calculating total revenue?calculating total revenue?

P x Q = TRP x Q = TR

When the price of a product When the price of a product increases, what happens to the increases, what happens to the

demand for its compliment?demand for its compliment?

Shifts to the left or DecreasesShifts to the left or Decreases

What are the Determinants of What are the Determinants of Demand Elasticity?Demand Elasticity?

UrgencyUrgencyAvailability of adequate substitutesAvailability of adequate substitutesProportion of income the purchase Proportion of income the purchase

requiresrequires

What is aggregate Demand?What is aggregate Demand?

Market demand or total demand in Market demand or total demand in the economythe economy

Which direction does a demand Which direction does a demand curve slope?curve slope?

DownwardDownward

Create a demand curve that Create a demand curve that reflects the Law of Demandreflects the Law of Demand

P

Q

D

Create a demand curve that Create a demand curve that reflects the substitution effectreflects the substitution effect

P

Q

D

Create a demand curve that Create a demand curve that reflects the Law of Diminishing reflects the Law of Diminishing

Marginal UtilityMarginal Utility

P

Q

D

Create a demand curve that Create a demand curve that demonstrates the income effectdemonstrates the income effect

P

Q

D

Demand curve that shows Demand curve that shows what happens to demand for what happens to demand for orange juice when lemonade orange juice when lemonade

prices dropprices drop

D1D2

Demand for cars when US Demand for cars when US incomes drop:incomes drop:

D1D2

Demand elasticity for a Demand elasticity for a Snickers candy barSnickers candy bar

P

Q

D

Elasticity of demand for lumber Elasticity of demand for lumber (wood):(wood):

What’s the economic What’s the economic relationship between a relationship between a

gun and a bullet?gun and a bullet?

ComplementsComplements

Assuming elastic demand, Assuming elastic demand, what happens to total what happens to total revenue when price revenue when price

increases?increases?DecreasesDecreases

Demand curve showing a change Demand curve showing a change for olives when the population for olives when the population

decreases?decreases?

What is the added benefit What is the added benefit received from the received from the

purchase or use of one purchase or use of one more unit of a product?more unit of a product?

Marginal utilityMarginal utility

What do consumers do What do consumers do when marginal utility is when marginal utility is

lower than price?lower than price?

Stop buyingStop buying

What elasticity of demand exists What elasticity of demand exists for a product without adequate for a product without adequate

subs but its purchase is subs but its purchase is considered urgent?considered urgent?

InelasticInelastic

Name the price elasticity:Name the price elasticity:

A 15% change in price results in a A 15% change in price results in a 27% change in the quantities 27% change in the quantities demandeddemanded

ElasticElastic

Name the elasticityName the elasticity

Price increases 100% causing the Price increases 100% causing the quantities demanded to fall from 20 quantities demanded to fall from 20 to 10 productsto 10 products

Unit elasticUnit elastic

Name the elasticity:Name the elasticity:

Quantities demanded decrease 4% Quantities demanded decrease 4% following a price hike of 12%following a price hike of 12%

InelasticInelastic

What is the relationship of shoes and What is the relationship of shoes and socks?socks?

complementscomplements

What is the relationship of a What is the relationship of a flashlight and a battery?flashlight and a battery?

complementscomplements

What is the relationship of a dog to a What is the relationship of a dog to a cat?cat?

substitutessubstitutes

What is the relationship of a car to a What is the relationship of a car to a motorcycle?motorcycle?

substitutessubstitutes

What is the likely elasticity of What is the likely elasticity of demand for Snickers candy bars?demand for Snickers candy bars?

elasticelastic

What is the likely price elasticity for What is the likely price elasticity for all PMS medicine?all PMS medicine?

EXTREMELY inelasticEXTREMELY inelasticHaha!Haha!Get it?Get it?Don’t get mad, it’s just a joke!Don’t get mad, it’s just a joke!

Create a demand curve indicating Create a demand curve indicating the change in demand for pumpkins the change in demand for pumpkins in October:in October:

Create a demand curve for laptops Create a demand curve for laptops the week before a huge sale on the week before a huge sale on laptops:laptops:

D1D2

Demand for washing machines when Demand for washing machines when immigration laws adjust to allow 12% immigration laws adjust to allow 12% more immigration:more immigration:

Demand for washing machines when Demand for washing machines when the recession turns into a depression:the recession turns into a depression:

D1D2

Demand for electric fans when the Demand for electric fans when the price of air conditioner units price of air conditioner units decreases 50%:decreases 50%:

D1D2

Demand for pretzels when the price Demand for pretzels when the price of corn nuts falls 45%:of corn nuts falls 45%:

D1D2

Demand for Brittney Spears concert Demand for Brittney Spears concert tickets when she announces she’s tickets when she announces she’s slashing the prices in half:slashing the prices in half:

P

Q

D

Should an entrepreneur raise or Should an entrepreneur raise or lower prices if demand for the lower prices if demand for the product being sold is inelastic?product being sold is inelastic?

raiseraise

If a product had elastic price If a product had elastic price elasticity, what will happen to total elasticity, what will happen to total revenue if the price is increased?revenue if the price is increased?

TR will decreaseTR will decrease

The Law of Demand tells us that The Law of Demand tells us that quantities demanded will decrease quantities demanded will decrease when prices increase. What related when prices increase. What related question does “elasticity” answer?question does “elasticity” answer?

By By how muchhow much will QD decrease? will QD decrease?