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3.1 Demand

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Greg Caskey

on 25 June 2018

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Transcript of 3.1 Demand

Unit 3: Demand, Supply, and Market-Clearing Price
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- 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 a few 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?

Charting Demand
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?
Example: Coffee
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?
3. Substitutes
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
3.1 Demand

What comes first?
Bubba's Demand for gasoline is represented by the ENTIRE LINE, not just a single point on the line
PRICE CHANGE causes a change in QUANTITY DEMANDED (not "Demand") !
A price decrease causes an INCREASE IN Q.D.
A price increased causes a DECREASE IN Q.D.
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?
Change in Qty. Demanded
The Demand Curve
Types of Goods
Changes in consumer income change their demand, but it depends on the type of product

Normal Good
As income increases, qty. demanded rises
As income falls, demand falls
Ex: Luxury Cars, Seafood, Steak, Jewelry, Homes

Inferior Good
As income increases, qty. demanded falls
As income decreases, demand rises
Ex: Ramen, Spam, Used Cars, Used clothes, public transportation
Normal or Inferior?
Why are Demand Curves Downward Sloping?
1. Diminishing Marginal Utility
Usually, the additional benefit of consuming a product falls with each additional unit consumed.
Ex: Diamond v. Water paradox
2. The Income Effect
If income is fixed, as the price of a good falls, your REAL income increases
3. The Substitution Effect
As the price of one good falls, it becomes relatively less expensive compared to others.
"Nutella Discount Spreads Chaos As Frenzied Shoppers Throughout France Lose It"
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