Demand - our willingness and ability
to purchase a good or service
~ what we want
OVERALL
Quantity Demanded - number of goods
purchased at a SPECIFIC PRICE
~ what we'll
buy at a certain price
Law of Demand
~ as P goes
up, Qd goes down
~ as P goes
down, Qd goes up
*P = price
* Qd = quantity demanded
~ P and
Qd have an inverse
relationship
Law of Diminishing Marginal Utility
~ utility =
satisfaction, use
~ as we consume
more of a good, the utility gained from each additioal good decreases
~ we are willing
to pay less for a good as we consume more of it
~ "think of
buying TVs for your house. You buy the biggest one for the living
room and
put the less expensive (and smaller) ones in the other rooms because you'll
get less
use from those."
Law of Demand can be shown in 2
ways
1. Demand Schedule
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3 2 1 |
2 3 4 |
2. Demand Curve
~ see a classmates'
notes for the curve b/c i cannot put it on the Internet. Sorry...
~ Rules of the
Demand Curve
~ movement along the curve represents a change in price
(change in Quantity Demanded)
~ a shift of the curve represents a change in something else
(change in overall Demand AT ALL PRICES!)
~ shift left = demand decreases
~ shift right = demand increases
4 Factors that cause a demand curve
to shift (Determinants of Demand)
1. Income
a. normal good
1. income increases = demand increases
2. income decreases = demand decreases
*demand follows income
*examples: new cars, more expensive foods
b. inferior good
1. income increases = demand decreases
2. income decreases = demand increases
*demand moves opposite income
*examples: used cars, store brands
c. neutral good
1. demand doesn't change as income changes
*examples: personal hygiene products
2. Preferences/Tastes
a. what's "In" versus what's "Out"
3. Number of
potential customers
a. more customers chasing the same good = increased demand
4. Price of related
goods
a. 2 types of related goods
1. Substitutes
a. they are similar goods and are interchangeable
b. the price of one good and the demand for the other moves in the same
direction
c. if the price of Coke increased, the demand for its substitute (Pepsi)
would increase as well
2. Complements
a. they are goods that are consumed together
b. the price of one good and the demand for the other move in opposite
directions
c. if the price of tennis balls increased, the demand for tennis rackets
would decrease