Study Guide handed out today. It will be due the day you take

your Section 2 Test.

What is demand?

The desire, ability and willingness to buy a product

Microeconomics concept Microeconomics: area of economics that deal

with behavior and decision making by small units

How does this apply to want vs. need?

How might you determine demand for a product?

The Individual Demand Schedule

A demand schedule is a table showing potential prices for a product and what quantity of the item people would be willing to buy if one unit of the product were that price

Price Quantity Demanded

$7.00 0

$5.00 0

$3.00 0

$2.00 1

$1.00 1

$0.50 2

The Individual Demand Schedule

People are willing to buy more units of a product at lower prices

After the prices reach a certain point, individuals will not buy any because it is simply too expensive or not worth the price Example: you may have $1, but you are not

going to spend it on a stick of gum – not because it’s unaffordable but because $1 is a ridiculous price for a stick of gum

The Individual Demand Curve

The Individual Demand Curve

A graph showing the quantity demanded at each and every price that might prevail in the market

NOT production possibilities frontier – PPF shows the trade offs in production between different quantity of two products. Demand Curve shows how much of a product a specific person is willing to buy at a given price

The Law of Demand

The quantity demanded of a good or service varies inversely with its price When the price goes up, quantity demanded

goes down

PRICE

QUANTITY

DEMANDED

Foundations for the Law of Demand

Confirmed by observing human behavior Think gas prices: gas prices go up, people try

to travel less and do not fill their tanks; gas prices go down, there are lines at the station and people purchase a greater quantity of gas

Confirmed in surveys People say they would buy more of a product

if the price was lower

The Market Demand Curve

Similar to the individual demand curve, except this looks at the quantities demanded by EVERYONE who is interested in purchasing the product

Demand and Marginal Utility

Marginal utility is the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product With the popcorn example: An extra unit of

popcorn from the movies means saving it until the next day to enjoy day-old popcorn, which is AWESOME.

Demand and Marginal Utility

Diminishing marginal utility: the extra satisfaction we get from using additional quantities begins to diminish Popcorn is no longer very good after the next

day, so purchasing more than two units of popcorn would not add to enjoyment, which is why the individual demand curve showed I would not purchase 3+ units of popcorn