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Define the following terms: Hold for discussion

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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  1. 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:

  2. 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.

  3. 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

  4. 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.

  5. 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

  6. 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.

  7. 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.

  8. 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

  9. 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 !

  10. Demand Shifts-ExamplesTell the determinant and show what will happen—shift right or left? • Price of Artificial Sweetener Increases—what happens to sugar demand?

  11. 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.

  12. 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?

  13. 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?

  14. 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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