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Notes: Chap 3 Demand
1. Demand:Amount of goods or services consumers will
buy at various prices.
2. Law of Demand:There is an opposite relationship between price and
quantity demanded.
3. Substitution Effect:Consumers will replace an expensive product with a
similar lower priced product.
$9 per pound
$6.50 per pound
4. Diminishing Marginal Utility:As more units are consumed, satisfaction declines
(lunch tacos)
5. Demand Schedule:Lists the quantity of goods consumers will buy at each
price.
6. Demand Curve:Plots a Demand Schedule on a graph.
7. Demand Shifts:Factors other than price that cause a change in demand.
8. What can cause a shift in demand?a. Consumer Tastes and Preferences - Example: iPhone
8. What can cause a shift in demand?a. Consumer Tastes and Preferences
$550
$150
9.7-inch screen; 1024-by-768-pixel resolution
7 Inch Screen; 800x600 pixel resolution
8. What can cause a shift in demand? b. Market Size - Example: China - Oil lamps from Rockefeller (1882)
8. What can cause a shift in demand?c. Income - Example: Recession
8. What can cause a shift in demand?d. Prices of Related Goods
i. Substitute Good:Replace expensive good with similar lower prices good.
1. Substitute Good Example: CVS brand eye drops
8. What can cause a shift in demand? ii. Complementary Good:
Goods that are used with other goods.1. Complementary Good Example: Running Accessories
$75
$30
$90
$120
$135
8. What can cause a shift in demand?e. Consumer Expectations:
Consumers make decisions based on anticipated earnings.
9. Elastic Demand:When a change in price makes an opposite change in
demand.a. Required for Elasticity:
1. Product is not necessary2. Substitute products are available
3. Costly?i. Example: Pizza (for students)
10. Inelastic Demand:When a change in price has no impact on demand.
a. Required for Inelasticity:1. Product is necessary
2. No substitutes are available3. Not costly
i. Example: Salt, Soap, heart medication, gasoline
11. Total Revenue:Income that a business receives from selling its products at a
given price. It is the simplest way to determine elasticity.