Lesson 6--demand[1]

DemandAcademic Decathlon—Lesson 6

Berryhill Economics

There are substitutes for EVERYTHING!

The law of demand is dependent on the notion that for anything there is a substitute which will be used when the opportunity cost of a thing is high enough.

Definitions:--Substitute: things are used in place of something else--Complement: things that are used together--Independent Goods: neither substitutes or complements

Demand

Individual Demand Schedule—a table that lists the number of items demanded by one person at various prices

Market Demand Schedule—a table that lists the number of items demanded by an entire market or group of people

Demand

Demand

Individual Demand Curve—the graphic representation of the individual demand schedule

Market Demand Curve—the graphic representation of the market demand schedule

Demand

The demand curve is almost always downward sloping

The vertical axis is always labeled PRICE The horizontal axis is always labeled

QUANTITY

Demand

Law of Demand—quantity demanded of a good and its price vary INVERSELY, ceteris paribus

--ceteris paribus means that if all other factors are held constant, then as the price of the good rises, the quantity demanded of the good will fall

Demand

Utility—a product’s use or how much satisfaction or use a person gets out of a product

Can anyone think of why utility will affect demand? Why are we returning to utility?

Demand

Marginal Utility—how much MORE a person will get out of adding ONE MORE unit of a product

How much utility will you get from a glass of lemonade on a hot day?

How much MORE utility will you get from a second glass?

A 10th glass? A 50th glass? A 100th glass?

Demand

Diminishing Marginal Utility—the satisfaction (or utility) obtained from consuming a good declines as more units of the good are consumed

This is why demand curves slope downward.

Change in Quantity Demanded

Abbreviated ΔQd Change in Qd is represented as a

movement along the demand curve and results from a change in price

Change in Qd

Change in Qd

The only thing that will result in a Change in Qd is a change in price of the product we are talking about

This is just a movement ALONG the curve that is already given—going from one point to another

Change in Demand

Abbreviated ΔD Change in D—portrayed as a shift of the

ENTIRE demand curve and it is caused when something changes the quantity of a product demanded at each price

Change in D

This is when you get an entirely NEW curve, so each point has changed. Now people are demanding more or less of the product at each price.

Can you think of anything that would do this? What would cause you to buy more or less CDs, even though the price of the CD stays the same?

Change in Demand

Determinants of Demand—things that will cause a change in D

--A change in the price of substitutes

--A change in the price of complements

--A change in consumer income

--A change in population

--A change in consumer tastes

--A change in consumer expectations

Increases in Demand

The entire demand curve shifts RIGHT. (Demand curves only shift RIGHT or LEFT, never UP or DOWN!) This is because at each given price there is now more quantity demanded. To show there is an increase in quantity, we move RIGHT because our quantity axis increases as we move further to the right.

Decreases in Demand

The entire demand curve shifts LEFT. This is because at each given price there is now less quantity demanded. To show there is a decrease in the quantity, we move left because our quantity axis decreases as we move further to the left.

Changes in D

Demand Elasticity

Demand elasticity is the extent to which a change in price causes a change in quantity demanded

How much does price influence how much we buy of a product

Demand Elasticity

Elastic Demand—when a given change in price causes a relatively larger change in Qd

Inelastic Demand—when a given change in price causes a relatively smaller change in Qd

Unit Elastic—when a given change in price causes a proportional change in Qd

Determinants of Demand Elasticity

Can the purchase be delayed?

--If yes, demand tends to be elastic

--If no, demand tends to be inelastic Are adequate substitutes available?

--If yes, demand is usually elastic

--If no, demand is usually inelastic

Determinants of Demand Elasticity

Does the purchase use a large portion of income?

--If yes, demand tends to be elastic

--If no, demand tends to be inelastic

Graphical Representations

Graphical Representations

Examples

What is something that you would still buy, even if there was a drastic increase in price?

What is something you would stop buying or limit your purchase of if there was just a small change in price?