Goal 8 Part 1 Notes
Chapter 21 and Chapter 23.1
Chapter 21 Section 1
Define the following terms:
1. demand-refers to the desire, willingness, and ability to buy a good or service.
2. demand schedule- a table that lists the various quantities of a product or service that someone is willing to buy over a range of prices.
3. demand curve- a graph that shows the amount of a product that would be bought at all possible prices in the market.
4. law of demand- when the quantity demanded and the price move in opposite directions.
5. market demand- the total demand of all consumers for their product or service.
6. utility- pleasure, usefulness, or satisfaction we get from using a product.
7. marginal utility- additional satisfaction
8. diminishing marginal utility- principal that our additional satisfaction tends to go down as more units are consumed.
Answer the following questions:
9. If the price of a product goes up, what happens to the demand? The demand will get lower because people won’t want to buy products at high prices.
10. If the price of a product goes down, what happens to the demand? The demand will go up because people will want to buy products at lower prices.
11. Demand and price have what kind of relationship? Inverse Relationship, demand goes up, prices goes down; vise-versa. (Negative; <- ->)
12. If you eat three piece of pizza, which one will you enjoy the most? Which one will you enjoy the least? What is this called? You would enjoy the first slice more, because it gives you more satisfaction. You would enjoy the last slice the least, because it gave you the least amount of satisfaction. This is called “diminishing marginal utility.” 13. Draw a demand curve for the demand schedule shown below:
Chapter 21, Section 2
Define the following terms:
1. substitute- consumers can use one in place of the other.
2. complement- products that are used together.
3. demand elasticity- the extent to which a change in price causes a change in the quantity demanded.
4. List the six determinants of demand (besides price) and give an example for each. a. Changes in Population ex: A company putting up a new appt. and the building soon filled with families. They begin buying products/services from businesses. Demand for gasoline, food, and video rentals in this area will go up. b. Changes in Income ex: When an economy is healthy, people get raises or better paying jobs. With more money to spend, they are willing to buy more of a product at any particular price- vice-versa. c. Changes in Tastes ex: When a product becomes popular, more people are willing to buy it at a particular price. d. Changes in Expectations ex: When a marker of audio products announces a breakthrough that will allow more music at a lower cost than before. Even if the new product might not be available for a year, some costumers might decide to buy fewer music CD’s because they want to wait for the new product. e. Changes in Substitutes ex: Margarine is a substitute for butter. If the price of margarine goes up, the demand for butter also increases. f. Changes in Complements ex:Computers and software are complements. With complementary goods, the demand for one moves in the opposite direction as the price of the other. If computer prices rise, fewer computers will be emended, and the demand for computer software will go down.
6. What is the difference between elastic demand and inelastic demand? Elastic demand is very responsive to a change in price while inelastic does not change as much.
7. Give two examples of products that have elastic demand. Candy bars-if the candy bar is $1 people will buy it, but if the price rises to $5, people will most likely not buy it. 8. Give two examples of products that have inelastic demand. Gas- if the price of gas is $2.00, or $5.00, people will still buy it because they need it. Water- The demand for water will always be high because people need