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Slide 1
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Demand and Supply Demand and Supply
Slide 3
DEMAND Chapter 4
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D1 D1 D1 D1 D2 D2 D2 D2 P QD 1 QD 2 Demand is the amount of
goods & services consumers are willing or are able to buy.
PPPPrice (P) how much an item is selling for. Quantity Demanded
(QD) the total amount of goods/services in demand. DEMAND
CURVE
Slide 5
A Demand curve measures the number of goods bought and at how
much. When (D) for a product changes for reasons other than price,
the (D) curve reasons other than price, the (D) curve shifts left
or right. shifts left or right. D1 D1 D1 D1 D2 D2 D2 D2 If the
Demand curve shifts right, there is an increase in (D) at any
prices. is an increase in (D) at any prices. P If the (D) curve
shifts left, Demand decreases at all prices. QD 1
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The Law of Demand an Increase in price = a decrease in the
Quantity Demanded at that price. = QD a a a a Decrease in price =
an increase in. the quantity demanded at that price. = QD
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What explains the Law of Demand? I Income effect- a change in
consumption resulting from a change in consumer income or a product
price. P Purchasing power - the amount of goods & services
consumers can buy with their available income. hhigher price =
lower power (I. cant buy as much) llower price = higher power (I
can. buy more)
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D1 D1 D1 D1 D2 D2 D2 D2 P QD 1 QD 2 More income results in more
demand for new cars; less demand for used cars. New Cars Used Cars
Less income results in more demand for used cars; less demand for
new cars.
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Substitution effect ( must be comparable to the original)
Substitution effect a change in price of the product causes a
consumer to react by buying a different good. ( must be comparable
to the original) Substitute good- - Substitute good- is used in
place of the original. Complimentary good - Complimentary good is
used with another good. Cheaper no name brand? Or name brand?
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There are 17 key words in chapter 4. Go through the chapter,
find each of the 17 key words, and provide a definition of each
word. *Pictures are optional* 9
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Elasticity of Demand Elasticity of Demand - measure of how
people react to price change. In-elastic Demand the change in price
of a product has little effect on demand for it - Why: * the
product is a necessity * ** * few substitutes are available * ** *
the price is a small part of. consumer income Im running a sale
ladies
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Elasticity of Demand - How does the change in price affect the
Demand for a product? EEEElastic D- a change in price can cause a
major change in (D) at that price: * The product is not a
necessity. * Substitutes are available. * The price is a large part
of consumer. Income.
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Elasticity= Percentage change in quantity demanded
__________________________________ Percentage change in price
Percentage Change = Original Number New Number
____________________________ Original Number X 100
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Values Greater than 1 indicate elasticity (The change in price
causes a change in demand.)
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14
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15
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What impacts Demand besides price? 16 Relative Importance
Prescription Medication Clothes Milk Necessity v. Luxury Gasoline
v. Candy bars Clothes v. hair gel Availability of Substitutes Coke
vs. Pepsi Fruit Loops v. Publix Brand Fruit Rings Ferrari v.
Honda
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Determinants of Demand -Reasons for changes in (D)emand- other
than the price of an item Income of consumers Number of consumers
Tastes & preferences Price of related goods Expectations of
consumers Buy it now to save money!!!! $399
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Diminishing Marginal Utility The more a product is used, the
less value it has to the consumer & (D)emand decreases. Demand
is not unlimited- at some point usefulness or desire for the
product decreases. I am sick of milk