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COMPLETE PREP:
4.1 UNDERSTANDING DEMAND
SECTION FOCUS AND KEY TERMS
TURN TO PAGE ?
THEN START READING SECTION
ECONOMICSMR. HOOD28 APRIL 2014
4.1 UNDERSTANDING DEMAND
ECONOMICSMR. HOOD`S NOTES28 APRIL 2014
34 SLIDES
OBJECTIVE 1EXPLAIN THE
LAW OF DEMAND
DEMAND IS THE
DESIRE FOR SOMETHING
AND THE ABILITY
TO PAY FOR IT
THE LAW OF DEMAND:
WHEN A GOOD`S PRICE IS LOWER, CONSUMERS WILL
BUY MORE
WHEN A GOOD`S PRICE IS HIGHER,
CONSUMERS WILL BUY LESS
THE PRICE OF GOODS STRONGLY
INFLUENCE US
TAKE PIZZA FOR EXAMPLE: WOULD YOU PAY $1
DOLLAR A SLICE?
WOULD YOU PAY $3 DOLLARS A SLICE?
WOULD YOU PAY $10 DOLLARS A SLICE?
THE HIGHER THE COST OF PIZZA,
THE LESS LIKELY YOU WILL BUY
THIS IS THE LAW OF DEMAND
OBJECTIVE 2UNDERSTAND HOW THE SUBSTITUTION EFFECT AND THE INCOME EFFECT
INFLUENCE DECISIONS
THE LAW OF DEMAND IS RESULT OF 2
PATTERNS OF BEHAVIOUR
1 - SUBSTITUTION EFFECT
WHEN COST OF PIZZA IS TOO HIGH…
PEOPLE LOOK TO CHEAPER ALTERNATIVES
2 - INCOME EFFECTRAISING PRICES MAKE US FEEL
POORER
CUT BACK ON PURCHASES,
CAN´T BUY AS MUCH AS USED TO
FEWER SLICES WITHOUT INCREASING
OTHER PURCHASES
SPENDING MORE,
BUT CONSUMPTION DOWN
OBJECTIVE 3CREATE A DEMAND SCHEDULE FOR AN INDIVIDUAL AND A
MARKET
A DEMAND SCHEDULE LISTS THE QUANTITY OF A
GOOD…
…THAT A PERSON WILL PURCHASE AT EACH PRICE IN
A MARKET
1 – INDIVIDUAL DEMAND SCHEDULE
EG. PIZZA $1 PER SLICE, ASHLEY BUYS 4 SLICES
PIZZA $2 PER SLICE, ASHLEY BUYS 2 SLICES
PIZZA $3 PER SLICE, ASHLEY BUYS 0 SLICES
2 – MARKET DEMAND SCHEDULE
EG. PIZZA $1 PER SLICE, PEOPLE BUY 250 SLICES
PIZZA $2 PER SLICE, PEOPLE BUY 150 SLICES
PIZZA $3 PER SLICE, PEOPLE BUY 50 SLICES
OBJECTIVE 4INTERPRET A DEMAND GRAPH USING DEMAND
SCHEDULES
DEMAND CURVE IS A GRAPHIC REPRESENTATION OF
DEMAND SCHEDULE
VERTICAL AXIS LOWEST PRICE AT BOTTOM
VERTICAL AXIS HIGHEST PRICE AT TOP
HORIZONTAL AXIS LOWEST DEMAND AT LEFT
HORIZONTAL AXIS HIGHEST DEMAND AT RIGHT
CAN BE USED TO PREDICT BUYING
HABITS
EG. A DEMAND CURVE