Define the following terms hold for discussion
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Define the following terms: Hold for discussion. Write the answers to these: Law of Demand: Substitution Effect: Give example Diminishing Marginal Utility: Give example Purchasing Power:. Changes in Demand 3.2.

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Define the following terms: Hold for discussion

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Define the following terms: Hold for discussion

  • Write the answers to these:

  • Law of Demand:

  • Substitution Effect: Give example

  • Diminishing Marginal Utility: Give example

  • Purchasing Power:


Changes in Demand 3.2

  • Demand Shifts: Time allows factors other than price to influence demand significantly.

  • In Economics these factors can shift the entire demand curve of a product to the right or to the left.


Changes in Demand 3.2

  • Determinants of Demand—Factors that can cause the entire demand curve to shift to either the right or left.

  • Consumer tastes and preferences

  • Market size

  • Income

  • Prices of related goods

  • Consumer expectations


Determinants of Demand 3.2

  • Consumer Tastes and Preferences:

    ex. Changes in music preferences

  • If a groups popularity rises—demand curve shifts to the right

  • If a groups popularity declines—demand curve shifts to the left.


Determinants of Demand 3.2

2. Market Size—The size of a market tend to affect demand.

  • Markets expand and contract

  • Nike launches new advertising campaign for its SHOX running shoes.

  • If successful, curve shifts to right


Determinants of Demand 3.2

  • Government Policy can affect size of markets—China trade policy example

  • New Technology can affect market size

    • Ex. Invention of video and internet cell phones

    • Old cell phone technology—demand curve shifts to the left.

    • New video technology—demand curve shifts to the right.


Determinants of Demand 3.2

  • 3. Income—Higher incomes generally allows people to spend more money for goods and services which causes the demand curve to shift to the right.

  • 4. Prices of Related Goods—A change in a products price can affect demand for the products related goods.

    • Ex. Butter/Margarine—Margarine is substituted for butter when price of butter goes up.


Determinants of Demand 3.2

  • Complementary Goods—Goods that are commonly used with other goods.

    • Ex. Paint / Paintbrushes

    • Price of paint increases—demand for paint and paintbrushes decreases


Determinants of Demand 3.2

  • 5. Consumer Expectations—Your expectations for more future income influences your purchases today.

    • Ex. Anticipate a raise in your salary OR

    • If you anticipate being laid off !


Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left?

  • Price of Artificial Sweetener Increases—what happens to sugar demand?


Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left?

  • 1950’s Musicals become “the rage” among 15-20 year olds. Show what might happen to DVD Sales in this category.


Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left?

  • The government does a retroactive tax cut accompanied by a $1500 rebate check for everyone over 18. What happens to demand for movie tickets?


Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left?

  • Detroit—a rumor spreads that GM is insolvent (doesn’t have sufficient money) and will have to close down 80% of its plants. What happens to demand for work shoes?


Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left?

  • The price of motor oil for automobiles becomes 10x more expensive. What happens to demand for gasoline?


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