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Chapter 4. Demand. Demand  the desire to own something and the ability to pay for it BOTH factors must be present for demand to exist. 4.1: Understanding Demand. Do I really Demand this?. Consumers will buy more of a good when its price is lower, and less when the price is higher.

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Chapter 4

Chapter 4

Demand


4 1 understanding demand

  • Demand the desire to own something and the ability to pay for it

  • BOTH factors must be present for demand to exist

4.1: Understanding Demand



Law of demand

Law of Demand


Law of demand in action

Law of Demand in Action


Influencing factors

  • Substitution effect if it were $5.00? When consumers react to an increase in a good’s price by consuming less of that good and more of a substitute good

  • Consumers would choose an alternative to pizza if it went up in price

Influencing Factors


Income effect

Income Effect


Demand schedules
Demand Schedules causes real income to decline


Demand schedules1

Demand Schedules


Market demand schedules

Market Demand Schedules


Demand curves
Demand Curves market will buy at various prices


Demand curves1

Demand Curves


Demand curve setup

Demand Curve Setup


Page 90

  • Notice two things about the curve on page 90 market will buy at various prices

  • First, only shows the relationship between the price of the good and the quantity demanded

  • Secondly, it is downward sloping. As price decreases, quantity demanded increases

Page 90


Shifts in the demand curve

Shifts in the market will buy at various pricesDemand Curve

Chapter 4, Section 2


Ceteris paribus

Ceteris Paribus


Change in demand vs change in quantity demanded

  • Do not confuse the two market will buy at various prices

  • A change in Quantity demanded is a change at one price only

  • A change in Demand is a change at all price levels, therefore forming an entire new curve

Change in Demand vs Change in Quantity Demanded


Change in demand

Change in Demand


What causes a change in demand

  • 6 Total Factors different quantities at EVERY price

  • Income, Consumer Expectations, Population, Demographics, Consumer Tastes and Advertising, and Prices of Related Goods

What Causes a Change in Demand?


1 income
1. Income different quantities at EVERY price


Income

Income


Normal vs inferior goods

  • Normal goods different quantities at EVERY price A good that consumers will demand more of when their income rises

  • Steak for dinner, not Ramen noodles

Normal vs Inferior Goods


Inferior goods

Inferior Goods



Consumer expectations

Consumer Expectations


3 population
3. Population increases


Population

Population


Biggest demand for baby boomers now

Biggest Demand for Baby Boomers Now?


4 demographics

4. Demographics


Demographics

  • The statistical characteristics of populations and population segments, especially when used to identify consumer markets

  • Businesses use this data to identify who potential customers are, where they live, and how likely they are to purchase a specific product

Demographics


Largest population on the rise

Largest population on the rise?



Consumer tastes and advertising

Consumer Tastes and Advertising


6 price of related goods

  • Complements largest rate? two goods that are bought and used together

  • Example…Peanut butter and Jelly

  • Substitutes Goods that are used in place of one another

  • Example…Beef and Chicken

6. Price of Related Goods


Effect on curves

Effect on Curves


Elasticity of demand

Elasticity of Demand will fall

Chapter 4: Section3


Defining elasticity

Defining Elasticity


Inelastic demand

  • A good is will fallINELASTIC if you buy the same amount or just a little less of a good after a large price increase; Not very sensitive to price changes

  • These goods will most likely be your needs and necessities

  • Medicine, baby formula/milk, etc

Inelastic Demand


Elastic demand

  • A good is will fallELASTIC if you buy much less of a good after a small price increase

  • Very responsive to price changes

Elastic Demand


Unit elastic

  • A good is will fallUNIT ELASTIC is the change in demand is proportional after a price change

  • Example: If a product is on sale for 20% off you will buy 20% more

Unit Elastic


Determining elasticity

  • If will fallX<1 Inelastic

  • If X>1 Elastic

  • If X = 1 Unit Elastic

Determining Elasticity


Elasticity formula

  • { will fallQb- QA)/ (Qb + Qa}/(Pb-Pa)/ (Pb + Pa}

  • Qb = quantity before

  • Qa= quantity after

  • Pb = Price before

  • Pa = Price after

Elasticity Formula


Factors affecting elasticity

  • #1 Availability of Substitutes will fall

  • If there are few substitutes available, you will buy more likely to buy the item even with an increase in price

  • If substitutes are available, you are less likely to buy the item

Factors Affecting Elasticity


2 relative importance

#2 Relative Importance


3 necessities vs luxuries

  • Will always buy necessities will fall They will be Inelastic

  • Luxuries are items we can more easily cut back on They will be Elastic

  • Necessities and luxuries will vary from person to person

#3 Necessities vs. Luxuries


4 change over time

#4 Change Over Time



Chevy volt
Chevy Volt efficient cars


Chevy volt1

  • $41,000 efficient cars

  • It can be plugged into a household electric socket and charged fully within about six hours. Completely charged it can drive roughly 40 miles on electricity alone

  • If the battery does run down, the 1.0-liter, three-cylinder gas engine acts as a generator to charge the battery and provides enough power to for up to an additional 600 miles.

Chevy Volt


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