Ch03Demand - Chapter3 TheConceptofDemand 1 Introduction...

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1 The Concept of Demand Chapter 3
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2 Introduction Most goods are scarce. Sacrifice is necessary to obtain more of a good. There are substitutes  for everything. Apple and orange Juice and soft drink A ten-dollar note and a ten-dollar coin (perfect  substitutes) Notice that “substitutability” is subjective.
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3 On the Notion of Needs Higher prices, meaning higher sacrifices, lead  people to seek substitutes . The fact that goods and services are scarce  entails trade-offs , i.e., the sacrifice of other  goods and services we value.
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4 On the Notion of Needs Consider the following case.  You have $3 and you wish to spend it all. You can buy an apply which costs you $1.5 or  an orange which costs you $3. In order to get an orange, you must scarify 2  apples. (What if you have unlimited money?)
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5 Marginal Values Questions Which is more valuable, water or diamonds? It depends on situation. Dying of thirst? In economics, the values that matter are  marginal values. Marginal means “additional ,” so in economics we  make decisions based on expected marginal benefit   versus   marginal cost .
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6 Marginal Choices The Economic Way of Thinking… Rejects the all-or-nothing approach Favors attention to Marginal benefits Marginal costs More of A and less of B  versus  more of B and less of  A For example, do you like 1 more  apple or 1 more  orange?
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7 The Demand Curve In a world of scarcity, individuals incur trade- offs – choosing less of one good for more of  another. Thus, economists developed the idea of  demand .
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8 The Demand Curve  -   making it graphic Demand is a concept that relates amounts  people want to obtain to the sacrifices they  must make to obtain these amounts. It is a very important application of marginal  analysis. Graphs can be used to illustrate relationships. Demand Curves Illustrate the relationship between price  and  quantity demanded .
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9 The Demand Curve -  Consumption Table Demand Schedule  is a table representing the  relationship between price  and quantity  demanded . Price per Gallon Gallons per Day $ 0.07 25 $ 0.04 40 $0.02 80 $0.01 160 $0.005 320
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10 The Demand Curve The previous table can be represented by a  graph. Vertical axis – possible (unit) prices that might  be charged. Horizontal axis – quantity purchased at those  prices. Economists call the curve showing the  relationship between the two a   Demand Curve.
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11 The Demand Curve GALLONS OF WATER PER DAY 0 40 80 120 200 280 320 360 400 160 240 .00 .02 .03 .04 .05 .06 $.07 PRICE PER GALLON .01
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12 The Demand Curve A demand curve illustrates the amount of a  good  that consumers will purchase at any  given price.
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