Demand and Marginal Utility

Economics

Mr. Biddle

Demand and Marginal Utility

• Utility- The capacity to be useful and provide satisfaction– Pertains to a product or

service

• The Utility of a good or service may vary from person to person– Ex- Diet Mt. Dew

Demand and Marginal Utility

• Marginal Utility- The extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product

• Buying a new one after the first

• The more we use a product we experience diminishing marginal Utility

Diminishing Marginal Utility• The extra satisfaction we

get from using additional quantities of product begins to diminish or fade

• B/c of DMU people are not willing to pay as much money for a second, third, or fourth product

• When you reach the point where the marginal utility is less than the price, you stop buying it

Factors Affecting Demand

• Sometimes things happen to change peoples willingness and ability to buy

• When this happens you experience Change in Quantity Demanded– Change in Price would

be an obvious one

The Income Effect

• The change in quantity demanded, b/c of a change in price that alters consumers’ real income

• Ex- If you went to the store thinking you were going to buy 6 CD’s for $90, but when you got there it only cost you $60. As a result, you feel $30 richer and may be willing to buy more. (or vice-versa)

• The income you have after you pay all expenses

The Substitute Effect

• The Change in quantity demanded, because of the change in the relative price of the product (How it relates to other products)

• This is when you buy cheaper goods to replace more expensive goods or services demanded

• Ex- buying a CD instead of going to a concert

“Fly High Free Bird”

Change in Demand

• Sometimes things happen to make people willing to buy different amounts of a product at the same price– Income – Tastes (fads)– Price of other goods– Number of consumers in

the market– Change in expectations

Consumer Income

• When a person makes more money they are willing to spend more

• When they make less they aren’t willing to spend as much

Consumer Tastes (Preferences)• Consumers don’t always

want the same things they have wanted in the past

• This can be effected by Advertising, fads, new products, the season, and so on

• Also, consumers can simply get tired of a product

The Price of Other Goods

• A change in the price of related products can cause a change in Demand

• Substitutes- a product that can be used in the place of another product– Ex- Butter & Margarine– If the price of one goes up,

the demand of the other would go up as well

The Price of Other Goods

• Complements- products that are used with other products

• When one product increases in demand so does the other one

• Ex- Gillette razor handles and blades

• Ex- Cake Mix and Icing

Change in Expectations

• Influences buying behavior based on the way people think about the future

• Bad weather reports makes people stock up on food, road salt, etc.

• If someone announced that in a year there will be a new way to listen to music on a smaller disk, people might stop buying CD/s now Patriots fans wouldn’t have bought so much

memorabilia if they would have known this was going to happen! 18-1*

* Spygate

Number of Consumers

• The bigger the market is the more people there is to buy products, which means a higher demand.

• Or vise versa

Reading Groups2nd Period

Group 5Cody WilsonCrystal ShepperdThomas HutchinsonLewis FarrellJordan Dennie

Group 4Hunter LeaBrooklyn TrentMason TaylorSamantha GlassSabrina Sebastian

Group 3Dylan ReynoldsAustin SiklesJozi SteffenTanner MainsChris Collins

Group 2Dominic BelewPatrick McCainCheyenne EgbringGabby BakerJonah Smith

Group 1TJ JustusWill ReddenKendal SandyLisanne Gregory

Reading Groups4th Period

Group 5Ronald BrockJoe JohnsonNelson ParksKayla GabbardMaraya Letner

Group 4McKenzie FlorenceCatlyne NuckelsJay HeathKallie BickelJacob Koettel

Group 2Robert HallBritney ZacharyTristen KnoxJody ActonSarah Tackett

Group 1Michael WebsterMadison DotsonJosh BrownMontgomery Franx

Group 3Tanya EdwardsTara FrymanMicheala PittmanJeff BrowningHunter Cookendorfer