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# Demand - PowerPoint PPT Presentation

Demand. Chapter 3. What is demand?. The willingness and ability to purchase a good or service Demand = Willingness and ability to purchase. The Law of Demand. As a price of a good increases the quantity demanded of the good decreases and vice versa

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Presentation Transcript

### Demand

Chapter 3

• The willingness and ability to purchase a good or service

• Demand = Willingness and ability to purchase

• As a price of a good increases the quantity demanded of the good decreases and vice versa

• Quantity Demanded – is there a difference between demand and quantity demanded?

• A demand for popcorn

• Buying the popcorn 2 bags for 1 dollar is quantity demanded

• Why do price and quantity demanded move in opposite directions?

• Law of diminishing marginal utility

• Candy experiment

• As you obtain less utility from additional units you will only buy large quantities at low prices

• Law of Demand says…

• The up / down relationship is inverse relationship

• A chart showing the inverse is a demand schedule

• 3-1 b shows the demand curve

• Plotting connected points to show patterns

• There are almost always patterns in economics

• Demand curves shifting right or left show more or less demand of a product at price

• What causes these shifts?

• As income goes up, people have the ability to purchase more of a good

• This doesn’t necessarily mean they will

• Normal Good – income goes up, purchase of that good goes up

• Inferior Good – income goes up, purchase of that good goes down

• Neutral Good – income goes up, purchase of that good stays the same

• People prefer certain products

• Types of video games

• Substitute Goods

• Cars – Coffee / Tea – Video Games

• Complements

• Things that go together

• Balls / Bats

• PS2 / Games

• Cars / Tires

• Certain goods are demanded more in certain areas

• Surfboards / CA v. SD

• A change in demand refers to a shift in the curve

• Change in quantity demanded = A movement from one point to another point on the same demand curve

• Researching

• Ethics in paying

• Elasticity of Demand

• Relationship between percentage change in in quantity demanded and the percentage change in price

% Change in quantity demanded

Elasticity of demand = ----------------------------------------------------

% Change in price

• Elastic demand – when quantity demanded percentage changes more than the price

• Inelastic demand – when quantity demanded percentage changes less than the price

• Unit Elastic demand – when quantity demanded and price have similar relationships

• The number of substitutes has great effects on elasticity

• Heart Medicines

• Luxury – don’t need it to survive

• Necessity – Food, medicine…

• Which goods are elastic?

• Making budgets on any level, percent of income is studied

• Obvious which goods are more responsive to

• Relationship to Time

• All versions of elasticity matter, because they relate to total revenue

• A rise in price does not necessarily mean a rise in revenue

Elastic demand + Price rise = TR Decrease

• If demand is elastic and price is decreased, revenue will go up

• Elastic Demand + Price Decline = TR Increase

• Inelastic demand + Price Rise = TR Increase

• If demand is inelastic a price rise will lead to a revenue increase

• If demand is inelastic and price declines, total revenue will decrease

• Inelastic demand + Price decline = TR Decrease

• Equal forces in opposite directions

• No change to total revenue