DemandChapter 4

Demand• Demand – the desire to have a good or service

and the ability to pay for it

• Law of demand – states that when the price of a good or service falls, consumers buy more of it

• Demand schedule – table that shows how much of a good or service a consumer is willing and able to purchase at each price (see page 100)

• Market demand schedule – shows quantity demanded by all people at certain prices

Demand Curve

• Graph that shows how much of a good or service an individual is willing to buy at each price

• Market demand curve – data in market demand schedule

Activity

• Work together on market demand schedule for pizza

• Each person in the group (no more than 3 per group) will fill in how much they are willing to pay for pizza at each given price.

• Person 1 fills in Day 1; person 2 fills in Day 2, etc.

• Total number of slices sold at each price will help determine market demand

Vera Wang: Designer in Demand

• Rad page 104 and answer questions

• How did Vera Wang respond to consumer demand?

• How did she create or generate consumer demand?

What Factors Affect Demand?

• Law of diminishing marginal utility – when marginal benefit from using additional unit of good tends to decline as used.

• Change in quantity demanded – change in amount consumers will buy, causes change in price

• Change in demand – occurs when a change in the marketplace changes consumer behavior (unemployment, etc)

• There are several factors that affect demand

What Factors Affect Demand?

• Class is broken into 6 groups, each will explain how these factors impact the demand for designer jeans:

• Group 1 Income

• Group 2 Consumer Tastes

• Group 3 Consumer Expectations

• Group 4 Market Size

• Group 5 Substitutes

• Group 6 Complements

Inferior v. Normal goods

• Normal goods – consumers demand more of these when their income level rises (high price or high quality, expensive goods)

• Inferior goods – consumers demand less of these when their income rises (discount jeans, cheap food)

Elasticity of Demand

• Elasticity of demand – how responsive consumers are to price changes

• Elastic – larger change in quantity demanded and price

• Inelastic – when change in price leads to small change in quantity demanded

• Can you think of anything that is INELASTIC?

What impacts elasticity?

• Substitute goods or services – is there something else that will fulfill need/want?

• Proportion of income – the amount of your income that goes to pay for something may cause it to be elastic/inelastic. The bigger portion of your income, the more likely you will change habits if price increases.

• Necessity v. Luxury – is it something you NEED or WANT?

• Review chart on page 120, what items are “inelastic”?

Total Revenue Test

• Total revenue – the amount of money a company receives for selling its products. (Price x. Quantity)

• Total revenue test

• If revenue increases after the price drops, demand is elastic (seller makes less per unit, but demand increased enough to allow them to make more money)

• If revenue decreases after the price is lowered, demand is inelastic (seller makes less money because demand didn’t increase enough)