Chapter 4 Demand by HC120808233847

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									Demand
          Jump Start Chapter 4 section 1
1.    The Law of Demand states that
     A.   More will be purchased at low prices than at high ones
     B.   Less will be purchased at low prices than at high ones
     C.   Approximately the same amount will be purchased at low prices than at higher prices
     D.   All people have the ability, and willingness to buy
2.    The demand curve is always
     A.   Upward sloping
     B.   Downward sloping
     C.   Level
     D.   Irregular
3.    Buying only one instead of two sodas at lunch time describes what concept?
     A.   Demand
     B.   Consumerism
     C.   Marginal utility
     D.   Diminishing marginal utility
4.    All of the following must exist for there to be demand EXCEPT:
     A.   A desire to buy a product
     B.   Producers to sell a product
     C.   An ability to buy a product
     D.   A willingness to buy a product
5.    Which of the following statements does NOT describe the demand curve?
     A.   Prices are listed on the vertical axis
     B.   Quantities demanded are listed on the horizontal axis
     C.   The demand curve represents the various combinations of process and quantities demanded
          that could occur in the market
     D.   It shows that demand for a product over time rather than at a given point in time
            Microeconomics
• Area that deals with
  – Behavior and decision making by small units
    (individuals and firms)
  – Collectively- these concepts help explain
     • How prices are determined
     • How individual economic decisions are made
What is Demand?
                Demand
• Desire, ability, and willingness to buy a
  product
• Can compete with others who have similar
  demands
• Microeconomic concept
• People and Firms act in best interest to
  answer
  – WHAT, HOW, and FOR WHOM
  Demand Illustrated: Example
• Bicycle Shop
  – Ask: Where the demand is?
    • Set up where have a lot of bicycle riders and few
      shops
  – Ask? How do you measure demand?
    • Visit other shops to gauge reactions of consumers
    • Poll consumers (prices, determine demand)
    • Study past data
  – Gives you idea of desire, willingness, and
    ability for people to pay
   Individual Demand Schedule
• A listing that shows     Figure 4.1
                           The Demand for Compact Discs
  various quantities of
  demanded of a
  particular product at
  all prices
• How much would you
  be willing and able to
  purchase over a
  range of possible
  prices?
              Demand Curve
• Individual demand          Figure 4.1
                             The Demand for Compact Discs
  curve illustrates how
  the quantity that a
  person will demand
  varies depending on
  the price of a good or
  service
  – Increase in demand =
    curve will shift right
  – Decrease in demand=
    curve will shift left
Demand Schedule illustrated in a
       Demand Curve
Figure 4.1                     Figure 4.1
The Demand for Compact Discs   The Demand for Compact Discs
        The Law of Demand
• States that the quantity demanded of a
  good or service varies according to price
  – Price goes up = quantity demand goes down
  – Price goes down = quantity demanded goes
    up
     Foundations for the Law of
             Demand
• Two reasons for calling it a LAW
  – Inverse relationship between price and
    quantity demanded
  – Common sense and simple observation
• People do buy more of a product at a
  LOW price
• People buy LESS when the product is at a
  HIGH price
      Market Demand Curve
• Demand curve that shows quantities
  demanded by everyone who is interested
  in buying the product.
         Market Demand Curve
Figure 4.2
Individual and Market Demand Curves
   Demand and Marginal Utility
• Reminder: Utility –
  – used to describe the amount of usefulness or
    satisfaction that someone get from the use of
    a product
• Marginal utility:
  – the extra usefulness or satisfaction a person
    gets from acquiring or using one or more unit
    of a product
  Demand and Marginal Utility
• Diminishing marginal utility
  – The extra satisfaction we get from using
    additional quantities of the product begins to
    diminish
  – Not willing to pay as much for 2nd, 3rd, or 4th as
    we did the first
  – Why Demand curve is DOWNWARD sloping
• Marginal utility < the price = STOP buying
     Chapter 4 Section 1 Vocabulary
                            1. Graph showing the quantity
A.   Microeconomics            demanded at each and every
B.   Demand curve              price at a given time
C.   Demand                 2. The decrease in satisfaction or
D.   Marginal utility          usefulness received from each
E.   Diminishing marginal      additional unit of a product
     utility                3. The desire, ability, and
                               willingness to buy a product
                            4. Area of economics that deals
                               with behavior and decision
                               making of small units
                            5. The extra usefulness or
                               satisfaction a person gets from
                               acquiring or using one more
                               unit of product
          Jump Start Chapter 4 section 1
1.    The Law of Demand states that
     A.   More will be purchased at low prices than at high ones
     B.   Less will be purchased at low prices than at high ones
     C.   Approximately the same amount will be purchased at low prices than at higher prices
     D.   All people have the ability, and willingness to buy
2.    The demand curve is always
     A.   Upward sloping
     B.   Downward sloping
     C.   Level
     D.   Irregular
3.    Buying only one instead of two sodas at lunch time describes what concept?
     A.   Demand
     B.   Consumerism
     C.   Marginal utility
     D.   Diminishing marginal utility
4.    All of the following must exist for there to be demand EXCEPT:
     A.   A desire to buy a product
     B.   Producers to sell a product
     C.   An ability to buy a product
     D.   A willingness to buy a product
5.    Which of the following statements does NOT describe the demand curve?
     A.   Prices are listed on the vertical axis
     B.   Quantities demanded are listed on the horizontal axis
     C.   The demand curve represents the various combinations of process and quantities demanded
          that could occur in the market
     D.   It shows that demand for a product over time rather than at a given point in time
Factors Affecting Demand
     Jump Start Chapter 4 section 2
1.    Which of the following would cause a change in quantity demanded for a
      product?
     A.   Changing consumer taste
     B.   Increasing consumer income
     C.   Decreasing the price of the product
     D.   Changing prices of related products
2.    How does the demand curve respond to an increase in demand?
     A.   The curve shifts left
     B.   The curve shifts right
     C.   There is movement along the curve
     D.   There is no change in the curve
3.    All of the following would cause a change in demand of a product EXCEPT?
     A.   A decrease in consumer income
     B.   The substitution effect
     C.   Changing consumer taste
     D.   An increase in the price of related products
4.    All of the following are examples of complements EXCEPT:
     A.   Butter and margarine
     B.   Flashlights and batteries
     C.   Peanut butter and jelly
     D.   Cameras and film
5.    A change in the number of consumers can cause
     A.   The demand curve to shift
     B.   A substitution effect
     C.   The market demand curve to shift
     D.   Prices to fall
 Change in Quantity Demanded
• Change in the amount of a product
  purchased when there is a change in price
• Income Effect
  – As prices drop, consumers are left with extra
    real income
• Substitution Effect
  – Price can cause consumers to substitute one
    product with another similar cheaper item
Change in Quantity Demanded
Figure 4.3
A Change in Quantity Demanded




        When there is a change in quantity demanded
           the change appears along the curve
         Change in Demand
• People buy different amounts of the
  product at the same prices
• Change in demand results in a new curve
  – Right = increase
  – Left = decrease
• Why Change?
  – Income, taste, the price of a related good,
    expectations, and the number of consumers
                Change in Demand
Figure 4.4
A Change in Demand
            Changes Happen
• Income:
  – Up = afford to buy more goods and services
    • Demand curve shifts to right
  – Down = cause them to buy less of the good at
    each and every price
    • Demand curve shifts to the left
• Taste
  – Advertising, news reports, fashion trends, the
    introduction of new products, changes in
    seasons
           Changes Happen
• Substitutes:             • Complements:
  – Competing products     • Products that increase
    that can be used in      the value of other
    place of one another     products
  – An increase in the     • An increase in the price
    price of one             of one reduces the
    increases the            demand for both
    demand for the other   • An increase in the use
  – Ex: Butter and           of one will increase the
        Margarine            use of the other
                           • Ex: film and camera
          Changes Happen
• Expectations
  – Way you think about the future
    • New technologies of tomorrow
• Number of Consumers
  – Increase in number of consumers causes the
    demand curve to shift
  – Decrease = shift in demand curve
    • Also shifts the market demand curve to the left =
      decline in market demand when anyone leaves the
      market
   Change in Demand v. Quantity Demanded

• People buy different     • Affected by price
  amounts at the same
  price                    • Move along the same
                             curve
• Shows a move from
  one curve to the other
Chapter 4 section 2 Vocabulary
A. Change in quantity    1. Change in quantity
   demanded                 demanded due to change in
B. Income effect            price that alters a consumers
C. Substitution effect      real income
D. Substitutes           2. Illustrated by movement
                            along the demand curve
E. Complements
                         3. Products that tend to be used
                            together
                         4. A change in quantity
                            demanded due to change in
                            the relative price of a product
                         5. Products that can be used in
                            place of other products
     Jump Start Chapter 4 section 2
1.    Which of the following would cause a change in quantity demanded for a
      product?
     A.   Changing consumer taste
     B.   Increasing consumer income
     C.   Decreasing the price of the product
     D.   Changing prices of related products
2.    How does the demand curve respond to an increase in demand?
     A.   The curve shifts left
     B.   The curve shifts right
     C.   There is movement along the curve
     D.   There is no change in the curve
3.    All of the following would cause a change in demand of a product EXCEPT?
     A.   A decrease in consumer income
     B.   The substitution effect
     C.   Changing consumer taste
     D.   An increase in the price of related products
4.    All of the following are examples of complements EXCEPT:
     A.   Butter and margarine
     B.   Flashlights and batteries
     C.   Peanut butter and jelly
     D.   Cameras and film
5.    A change in the number of consumers can cause
     A.   The demand curve to shift
     B.   A substitution effect
     C.   The market demand curve to shift
     D.   Prices to fall
Elasticity of Demand
     Jump Start Chapter 4 section 3
1.        Total expenditures are determined by
     A.       multiplying the price of a product by the quantity demanded
     B.       measuring the elasticity of a product
     C.       dividing the price of the product by demand
     D.       dividing the demand doe the product by its price
2.        The relationship between the change in price and total expenditures for an elastic
          demand curve is
     A.       Variable
     B.       Unit elastic
     C.       Inverse
     D.       Direct
3.        All of the following are determinants of demand elasticity EXCEPT:
     A.       Whether the purchase of the product can be delayed
     B.       Whether there are adequate substitutes for the product
     C.       Whether the purchase of the product requires a large portion of income
     D.       Whether the product has utility
4.        A company decreases the price of a gallon of milk by 10 percent and the company’s
          total revenues fall significantly. What term best describes the demand for milk?
     A.       Elastic
     B.       Inelastic
     C.       Unit elastic
     D.       Demand elastic
5.        All of the following products have relatively inelastic demand EXCEPT:
     A.       A physician’s services
     B.       Tobacco products
     C.       Stereo equipment
     D.       Prescription drugs
         Demand Elasticity
• Elasticity: measure how sensitive
  consumers are to price change
• Demand Elasticity: the extent to which
  change in price causes a change in
  quantity change
• Because some goods and services are
  affected by price more than others, we
  classify demand as either elastic or
  inelastic.
          Demand Elasticity
        Elastic                  Inelastic
• Small price changes   • Price changes don’t
  can make big            affect demand
  changes in demand     • Lower price will NOT
• Amount bought will go   affect the amount
  up when price goes      bought
  down                  • You can’t wait to buy
• You can wait to buy
          Demand Elasticity
• Unit elastic: when a change in price cause
  a proportional change in demand
  – Percent change in quantity approx. = percent
    in price
  – i.e.: 5% drop in price approx. = 5% increase
    in quantity demanded
  The Total Expenditures Test
• TET: the amount that consumers spend on
  a product at a particular price
Figure 4.5
The Total Expenditures Test for Demand Elasticity
  Demand is elastic if you answer
  YES to the following questions:
• Can the purchase be delayed?
  – Yes = elastic
  – No = inelastic
• Are adequate substitutes available?
  – Yes = elastic
  – No = inelastic
• Does the purchase use a large portion of your
  income?
  – Yes = elastic     (Ex: car)
  – No = inelastic    (Ex: salt)
     Vocabulary Chapter 4 section 3
A.   Elasticity          1. The extent to which a change in price
B.   Demand elasticity      causes a change in the quantity
C.   Elastic                demanded
D.   Unit elastic        2. Describes demand when a given change
E.   Inelastic              in price causes a relatively smaller
                            change in the quantity demanded
                         3. Describes demand when a given change
                            in price causes a proportional change in
                            the quantity demanded
                         4. A measure of responsiveness that
                            shows how a dependent variable such
                            as quantity responds to an independent
                            variable such as price
                         5. Describes demand when a given change
                            in price causes a relatively larger change
                            in the quantity demanded
     Jump Start Chapter 4 section 3
1.    Total expenditures are determined by
     A.   multiplying the price of a product by the quantity demanded
     B.   measuring the elasticity of a product
     C.   dividing the price of the product by demand
     D.   dividing the demand doe the product by its price
2.    The relationship between the change in price and total expenditures for an
      elastic demand curve is
     A.   Variable
     B.   Unit elastic
     C.   Inverse
     D.   Direct
3.    All of the following are determinants of demand elasticity EXCEPT:
     A.   Whether the purchase of the product can be delayed
     B.   Whether there are adequate substitutes for the product
     C.   Whether the purchase of the product requires a large portion of income
     D.   Whether the product has utility
4.    A company decreases the price of a gallon of milk by 10 percent and the
      company’s total revenues fall significantly. What term best describes the
      demand for milk?
     A.   Elastic
     B.   Inelastic
     C.   Unit elastic
     D.   Demand elastic
5.    All of the following products have relatively inelastic demand EXCEPT:
     A.   A physician’s services
     B.   Tobacco products
     C.   Stereo equipment
     D.   Prescription drugs

								
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