Ch.3+Demand

Terms: Demand Shedule**- Shows the relationship between the price of a good or service and the quantity that consumers demand.
 * Demand**-The amount of a good or service that a consumer is wiling and able to buy at various possible prices during a given time period.
 * Quantity Demand**- The amount of a good or service that a consumer is wiling and able to buy at each particular price during a given time period.
 * The Law of Demand**- States that an increase in a good's price causes a decrease in the quantity demanded and that a decrease in price causes an increase in the quantity demand.
 * Purchasing power**- The income thatpeople have available to spend on goods and services.
 * Income Effect**- Any increase or decrease in consumer's purchasing power caused by a change in price.
 * Substitution Effect**- The tendency of consumers to substitute a similar, lower-priced product for another product that is relatively more expensive.
 * Diminishing Marginal Utility**- The marginal utility of each unit consumed imnishes with each unit.
 * Demand Curve-** Plots this information on a graph**.
 * Determinants of Demand**- 5 factors Consume tastes and preferences, market size, Income, Prices of related goods, and consumer expectations
 * Substitute goods**- Goods that can be used to replace the purchase of similar gooods when prices rise.
 * Complementary goods**- Goods that are commonly used with other goods.
 * Elasticity of demand**- the degree to which changes in good's price affect the quantity demanded by consumers.
 * Elastic demand**- exists when small change in a good's price causes a major, opposite change in the quantity demand.
 * Inelastic demand**- exists when a change in a good's price has little impact on the quantity demanded.
 * Total revenue**- The total income that a business recieves from selling its product.
 * Normal Good-** High income and increase in demand for goods.
 * Infererior goods**- High income and decrease in demand for goods.

**Inelastic Demand**: -The product is a necessity -There are few or no readily available substitutes for the product - The product's cost reprsents a small portion of consumers' income Examples: salt, oil, water -The product is not a necessity -The are readily availale substitutes -The product's cost represents a large portion of consumers' income Examples: fast food, snacks, vehicles -**Consumer tastes and preferences -market size -income -prices of related goods -Consumer expectations
 * Topics: **
 * Elastic Demand**
 * Determinants of Demand

-income effect 1. lower prices increase the consumer's purchasing power and increase the quantity demanded 2. may not apply if consumer still plans on buying the same amount of a product they originally wanted, even with a price change -substitution effect 1. higher price for product causes a decrease in the quantity demanded because another similar product can be used 2. may not apply because a rise in price may not lower the quantity demanded if an essential good or service has no readily available substitute -diminishing marginal utility 1.product's overall utility typically increases as more of the product is consumed. However, as more units of a product are consumed, the satisfaction received from consuming each additional unit declines. 2. there's a limit to a product's utility to consumers and thus a limit to consumers' demand. -substitute goods 1. use similar product in placement of another when prices change (ex.: butter and margarine) 2. increase in product's price leads to increased demand for the product's substitute goods -complementary goods 1. product used with another product (ex.: paint and paintbrushes) 2. increase in product's price causes decreased demand for that product's complementary goods
 * Law of Demand**
 * Related Goods**

many nonprice factors can shift demand curve:** Consumer tastes and prefernces market size income prices of related goods consumer expectations
 * __Shifts in Demand:__

Connection to everyday life:

Check out this article: []. It provides a good glimpse of how demand has changed in video rentals as a result of consumers' tastes and preferences. An example of how demand can change as a result of price of related goods: Demand goes up for hamburger buns when the price of ground beef drops. An example of how demand changes as a result of consumer tastes and preferences: Demand for iPads rises when they ad a second generation to the series.

- [] - [] -http://www.businessweek.com/news/2010-05-20/soybeans-corn-fall-as-europe-debt-crisis-may-slow-crop-demand.html -http://www.reuters.com/article/idUSN1922103220100520?type=marketsNews -http://montreal.ctv.ca/servlet/an/local/CTVNews/20100505/mtl_gas_100505/20100505/?hub=MontrealHome [] He is an article about oil demand- [] [] [] [] [] [] [] [] [] [] [] [] [] [] __ [] ____ [] __