Chapter 4 Demand Lesson 1 Part 1 PDF

Chapter 4 Demand Lesson 1 What is Demand? Part 1  Objectives In this section, you will learn that you express demand for a product when you are willing and able to purchase it.  Content Vocabulary demand (p. 91) microeconomics (p. 91) market ec...

Chapter 4 Demand Lesson 1 What is Demand? Part 1  Objectives In this section, you will learn that you express demand for a product when you are willing and able to purchase it.  Content Vocabulary demand (p. 91) microeconomics (p. 91) market economy (p. 92) demand schedule (p. 92) demand curve (p. 93) Law of Demand (p. 93) market demand curve (p. 94) marginal utility (p. 95) diminishing marginal utility (p. 95)  the “demand” for a product: we mean more than the desire to simply have or to own the item. to be counted in the marketplace, desire the ability & willingness to pay for it. Only those people with demand—the desire, ability, and willingness to buy a product—can compete with others who have similar demands.  Demand is a microeconomic concept. Microeconomics is the part of economic theory that deals with behavior & decision making by individual units, such as people and firms. Collectively, our microeconomic concepts help explain how prices are determined and how individual economic decisions are made.  demand combination of desire, ability, and willingness to buy a product microeconomics part of economics that studies small units, such as individuals & firms  MAIN Idea Demand is a concept specifying the different quantities of an item that will be bought at different prices.  Economics & You Do you buy more of an item when the price goes down, or less of it when the price goes up?  In a market economy people and firms act in their own best interests to answer the basic WHAT, HOW, and FOR WHOM questions.  Demand Illustrated The concept of demand is easy to understand because it involves only two variables the price & quantity of a specific product at a given point in time. For example, we might want to know how  many people would want to see a movie on a given afternoon if the price was $5. Or we might want to know how many would want to view it if the price was $10.  The answers would depend on a number of things, including the number of people living in the area, the number and types of other movies that were playing at the same time, and of course the popularity of the movie itself. But in the end, everything would be measured in terms of prices and quantities. Demand and Prices If the prices of CDs drop, consumers will be better able and more willing to buy them. How does this  Example As you can see, Mike would not buy any CDs at a price of $25 or $30, but he would buy one if the price fell to $20, and he would buy three if the price was $15, and so on. Just like the rest of us, he is generally willing to buy more units of a product as the price gets lower.  The Individual Demand Curve The demand schedule in Panel A of Figure 4.1 can also be shown graphically as the downward-sloping line in Panel B. All we have to do to is to transfer each of the price-quantity observations in the demand schedule to the graph, and then connect the points to form the curve. Economists call this the demand curve, a graph showing the quantity demanded at each and every price that might prevail in the market.  For example, point a in Panel B shows that Mike purchased three CDs at a price of $15 each, while point b shows that he will buy five at a price of $10. The demand schedule and the demand curve are similar in that they both show the same information—one in the form of a table and the other in the form of a graph.  How do you react to a change in the price of an item? How does this illustrate the concept of demand? People often buy more of an item if the price is low and less of the item if the price is high. The Law of Demand is that the quantity demanded of a good or service varies inversely with its price. The assumptions of the Law of Demand Price of related goods remains constant Income of the consumer remains constant Taste and preferences of the consumer remain constant