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Transcript of 3.1 Demand
What role do prices play in a market economy?
What is demand, and how does it illustrate the price effect?
What is the relationship between individual demand and market demand?
What is the price elasticity of demand?
Demand and the Price Effect
High prices--> fewer buyers, many sellers
Low prices--> many buyers, few sellers
Products are sold to those who are WILLING + ABLE to pay the market price
DEMAND- The desire, ability, and willingness to buy a product.
You may want it, but can't afford it because you are broke... ONLY consumers WILLING AND ABLE to buy a product affect demand
LAW OF DEMAND- an INVERSE relationship b/t price and quantity demanded of a product
Ex: People will buy more gas at a lower price, and vice versa
What are 3 things that you want but will likely never be able to "demand" ?
If your favorite burger's price rose to $30, how many would you buy in a week?
If your favorite burger's price fell to $.50, how many would you buy in a week?
What price do you feel makes your favorite cheeseburger a good value?
What is the highest price you would pay for your favorite cheeseburger?
Prices on Vertical Axis
Qty demanded on Horizontal Axis
What is the lowest amount of gas shown in Bubba's demand?
What is the highest price of gas in Bubba's demand?
At $3.00 a gallon, how many gallons of gasoline will Bubba buy?
When the price of a cup of coffee drops to 2$, what is the increase in quantity of coffee demanded?
How many cups of coffee are demanded at $5 a cup?
Does this graph show an increase in demand?
The PRICE EFFECT
People buy less of something at higher prices than they would at lower prices.
What is the distinction between quantity demanded and "demand"?
Why do people behave according to the Price Effect?
1. Buying Power
The qty. of g/s a person can buy with a given amt. of money.
When the price of a G/S goes down, your money has increased its buying power
The value we place on certain G/S depends greatly on the price of that G/S.
2. Diminishing Personal Value
The point reached when any additional unit of a G/S is less satisfying than before.
Explains how lower prices are supposed to increase qty demanded
Ex: 1 Slice for $2.00, 2 Slices for $3.50
How many times is enough of your favorite song in a row before you're tired of it?
At what point should I stop expanding upon a joke before I "kill the joke", then people laugh at me and not with me?
2. Diminishing Marginal Utility
What are situations in which you would be inclined to buy more than one product if the seller offered you a lower average price on two or more of the items?
A G/S that can replace another G/S
Our willingness to choose the substitute depends on the price of the product we really want.
There are substitutes for nearly everything!
Driving to school:
can you think of any product for which there is no substitute ??
UNIT 3: Demand, Supply, and Market-Clearing Price
What comes first?
Bubba's Demand for gasoline is represented by the ENTIRE LINE, not just a single point on the line
DEMAND CURVES SLOPE DOWNWARD!
Only PRICE CHANGE causes a change in QUANTITY DEMANDED !
A price decrease causes an INCREASE IN Q.D.
A price increased causes a DECREASE IN Q.D.
Price change DOES NOT CAUSE A SHIFT IN THE DEMAND CURVE!