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Demand
Jump Start Chapter 4 section 1 1. The Law of Demand states that
A. More will be purchased at low prices than at high ones B. Less will be purchased at low prices than at high ones C. Approximately the same amount will be purchased at low prices than at higher prices D. All people have the ability, and willingness to buy
2. The demand curve is alwaysA. Upward sloping B. Downward sloping C. Level D. Irregular
3. Buying only one instead of two sodas at lunch time describes what concept?A. Demand B. Consumerism C. Marginal utility D. Diminishing marginal utility
4. All of the following must exist for there to be demand EXCEPT:A. A desire to buy a product B. Producers to sell a product C. An ability to buy a product D. A willingness to buy a product
5. Which of the following statements does NOT describe the demand curve?A. Prices are listed on the vertical axis B. Quantities demanded are listed on the horizontal axis C. The demand curve represents the various combinations of process and quantities demanded
that could occur in the market D. It shows that demand for a product over time rather than at a given point in time
Microeconomics
• Area that deals with – Behavior and decision making by small units
(individuals and firms)– Collectively- these concepts help explain
• How prices are determined• How individual economic decisions are made
What is Demand?
Demand
• Desire, ability, and willingness to buy a product
• Can compete with others who have similar demands
• Microeconomic concept
• People and Firms act in best interest to answer – WHAT, HOW, and FOR WHOM
Demand Illustrated: Example
• Bicycle Shop – Ask: Where the demand is?
• Set up where have a lot of bicycle riders and few shops
– Ask? How do you measure demand?• Visit other shops to gauge reactions of consumers • Poll consumers (prices, determine demand)• Study past data
– Gives you idea of desire, willingness, and ability for people to pay
Individual Demand Schedule Figure 4.1The Demand for Compact DiscsFigure 4.1The Demand for Compact Discs• A listing that shows
various quantities of demanded of a particular product at all prices
• How much would you be willing and able to purchase over a range of possible prices?
Demand Curve
• Individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service – Increase in demand =
curve will shift right – Decrease in demand=
curve will shift left
Figure 4.1The Demand for Compact DiscsFigure 4.1The Demand for Compact Discs
Demand Schedule illustrated in a Demand Curve
Figure 4.1The Demand for Compact DiscsFigure 4.1The Demand for Compact Discs
Figure 4.1The Demand for Compact DiscsFigure 4.1The Demand for Compact Discs
The Law of Demand
• States that the quantity demanded of a good or service varies according to price– Price goes up = quantity demand goes down – Price goes down = quantity demanded goes
up
Foundations for the Law of Demand
• Two reasons for calling it a LAW – Inverse relationship between price and
quantity demanded – Common sense and simple observation
• People do buy more of a product at a LOW price
• People buy LESS when the product is at a HIGH price
Market Demand Curve
• Demand curve that shows quantities demanded by everyone who is interested in buying the product.
Figure 4.2Individual and Market Demand CurvesFigure 4.2Individual and Market Demand Curves
Market Demand Curve
Demand and Marginal Utility
• Reminder: Utility – – used to describe the amount of usefulness or
satisfaction that someone get from the use of a product
• Marginal utility: – the extra usefulness or satisfaction a person
gets from acquiring or using one or more unit of a product
• Diminishing marginal utility– The extra satisfaction we get from using
additional quantities of the product begins to diminish
– Not willing to pay as much for 2nd, 3rd, or 4th as we did the first
– Why Demand curve is DOWNWARD sloping
• Marginal utility < the price = STOP buying
Demand and Marginal Utility
Chapter 4 Section 1 Vocabulary
A. MicroeconomicsB. Demand curveC. Demand D. Marginal utility E. Diminishing marginal
utility
1. Graph showing the quantity demanded at each and every price at a given time
2. The decrease in satisfaction or usefulness received from each additional unit of a product
3. The desire, ability, and willingness to buy a product
4. Area of economics that deals with behavior and decision making of small units
5. The extra usefulness or satisfaction a person gets from acquiring or using one more unit of product
Jump Start Chapter 4 section 1 1. The Law of Demand states that
A. More will be purchased at low prices than at high ones B. Less will be purchased at low prices than at high ones C. Approximately the same amount will be purchased at low prices than at higher prices D. All people have the ability, and willingness to buy
2. The demand curve is alwaysA. Upward sloping B. Downward sloping C. Level D. Irregular
3. Buying only one instead of two sodas at lunch time describes what concept?A. Demand B. Consumerism C. Marginal utility D. Diminishing marginal utility
4. All of the following must exist for there to be demand EXCEPT:A. A desire to buy a product B. Producers to sell a product C. An ability to buy a product D. A willingness to buy a product
5. Which of the following statements does NOT describe the demand curve?A. Prices are listed on the vertical axis B. Quantities demanded are listed on the horizontal axis C. The demand curve represents the various combinations of process and quantities demanded
that could occur in the market D. It shows that demand for a product over time rather than at a given point in time
Factors Affecting Demand
Jump Start Chapter 4 section 21. Which of the following would cause a change in quantity demanded for a
product?A. Changing consumer tasteB. Increasing consumer income C. Decreasing the price of the product D. Changing prices of related products
2. How does the demand curve respond to an increase in demand?A. The curve shifts left B. The curve shifts right C. There is movement along the curve D. There is no change in the curve
3. All of the following would cause a change in demand of a product EXCEPT?A. A decrease in consumer income B. The substitution effect C. Changing consumer taste D. An increase in the price of related products
4. All of the following are examples of complements EXCEPT:A. Butter and margarine B. Flashlights and batteries C. Peanut butter and jelly D. Cameras and film
5. A change in the number of consumers can cause A. The demand curve to shift B. A substitution effect C. The market demand curve to shift D. Prices to fall
Change in Quantity Demanded
• Change in the amount of a product purchased when there is a change in price
• Income Effect– As prices drop, consumers are left with extra
real income
• Substitution Effect – Price can cause consumers to substitute one
product with another similar cheaper item
Figure 4.3A Change in Quantity DemandedFigure 4.3A Change in Quantity Demanded
Change in Quantity Demanded
When there is a change in quantity demanded the change appears along the curve
Change in Demand
• People buy different amounts of the product at the same prices
• Change in demand results in a new curve – Right = increase – Left = decrease
• Why Change?– Income, taste, the price of a related good,
expectations, and the number of consumers
Change in Demand Figure 4.4A Change in DemandFigure 4.4A Change in Demand
Changes Happen
• Income: – Up = afford to buy more goods and services
• Demand curve shifts to right
– Down = cause them to buy less of the good at each and every price
• Demand curve shifts to the left
• Taste – Advertising, news reports, fashion trends, the
introduction of new products, changes in seasons
Changes Happen
• Substitutes:– Competing products that
can be used in place of one another
– An increase in the price of one increases the demand for the other
– Ex: Butter and Margarine
• Complements:• Products that increase
the value of other products
• An increase in the price of one reduces the demand for both
• An increase in the use of one will increase the use of the other
• Ex: film and camera
• Expectations– Way you think about the future
• New technologies of tomorrow
• Number of Consumers – Increase in number of consumers causes the
demand curve to shift – Decrease = shift in demand curve
• Also shifts the market demand curve to the left = decline in market demand when anyone leaves the market
Changes Happen
Change in Demand v. Quantity Demanded
• People buy different amounts at the same price
• Shows a move from one curve to the other
• Affected by price
• Move along the same curve
Chapter 4 section 2 Vocabulary
A. Change in quantity demanded
B. Income effect C. Substitution effect D. Substitutes E. Complements
1. Change in quantity demanded due to change in price that alters a consumers real income
2. Illustrated by movement along the demand curve
3. Products that tend to be used together
4. A change in quantity demanded due to change in the relative price of a product
5. Products that can be used in place of other products
Jump Start Chapter 4 section 21. Which of the following would cause a change in quantity demanded for a
product?A. Changing consumer tasteB. Increasing consumer income C. Decreasing the price of the product D. Changing prices of related products
2. How does the demand curve respond to an increase in demand?A. The curve shifts left B. The curve shifts right C. There is movement along the curve D. There is no change in the curve
3. All of the following would cause a change in demand of a product EXCEPT?A. A decrease in consumer income B. The substitution effect C. Changing consumer taste D. An increase in the price of related products
4. All of the following are examples of complements EXCEPT:A. Butter and margarine B. Flashlights and batteries C. Peanut butter and jelly D. Cameras and film
5. A change in the number of consumers can cause A. The demand curve to shift B. A substitution effect C. The market demand curve to shift D. Prices to fall
Elasticity of Demand
Jump Start Chapter 4 section 3 1. Total expenditures are determined by
A. multiplying the price of a product by the quantity demanded B. measuring the elasticity of a productC. dividing the price of the product by demand D. dividing the demand doe the product by its price
2. The relationship between the change in price and total expenditures for an elastic demand curve is
A. Variable B. Unit elastic C. InverseD. Direct
3. All of the following are determinants of demand elasticity EXCEPT:A. Whether the purchase of the product can be delayed B. Whether there are adequate substitutes for the product C. Whether the purchase of the product requires a large portion of income D. Whether the product has utility
4. A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk?
A. Elastic B. Inelastic C. Unit elastic D. Demand elastic
5. All of the following products have relatively inelastic demand EXCEPT:A. A physician’s services B. Tobacco productsC. Stereo equipment D. Prescription drugs
Demand Elasticity
• Elasticity: measure how sensitive consumers are to price change
• Demand Elasticity: the extent to which change in price causes a change in quantity change
• Because some goods and services are affected by price more than others, we classify demand as either elastic or inelastic.
Demand Elasticity
Elastic• Small price changes
can make big changes in demand
• Amount bought will go up when price goes down
• You can wait to buy
Inelastic• Price changes don’t
affect demand• Lower price will NOT
affect the amount bought
• You can’t wait to buy
• Unit elastic: when a change in price cause a proportional change in demand – Percent change in quantity approx. = percent
in price – i.e.: 5% drop in price approx. = 5% increase
in quantity demanded
Demand Elasticity
The Total Expenditures Test
• TET: the amount that consumers spend on a product at a particular price
Figure 4.5The Total Expenditures Test for Demand ElasticityFigure 4.5The Total Expenditures Test for Demand Elasticity
Demand is elastic if you answer YES to the following questions:
• Can the purchase be delayed?– Yes = elastic– No = inelastic
• Are adequate substitutes available?– Yes = elastic– No = inelastic
• Does the purchase use a large portion of your income?– Yes = elastic (Ex: car)– No = inelastic (Ex: salt)
Vocabulary Chapter 4 section 3
A. Elasticity B. Demand elasticity C. Elastic D. Unit elastic E. Inelastic
1. The extent to which a change in price causes a change in the quantity demanded
2. Describes demand when a given change in price causes a relatively smaller change in the quantity demanded
3. Describes demand when a given change in price causes a proportional change in the quantity demanded
4. A measure of responsiveness that shows how a dependent variable such as quantity responds to an independent variable such as price
5. Describes demand when a given change in price causes a relatively larger change in the quantity demanded
Jump Start Chapter 4 section 3 1. Total expenditures are determined by
A. multiplying the price of a product by the quantity demanded B. measuring the elasticity of a productC. dividing the price of the product by demand D. dividing the demand doe the product by its price
2. The relationship between the change in price and total expenditures for an elastic demand curve is
A. Variable B. Unit elastic C. InverseD. Direct
3. All of the following are determinants of demand elasticity EXCEPT:A. Whether the purchase of the product can be delayed B. Whether there are adequate substitutes for the product C. Whether the purchase of the product requires a large portion of income D. Whether the product has utility
4. A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk?
A. Elastic B. Inelastic C. Unit elastic D. Demand elastic
5. All of the following products have relatively inelastic demand EXCEPT:A. A physician’s services B. Tobacco productsC. Stereo equipment D. Prescription drugs
