Economics_Ch04

Do these people have both willingness and ability to

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Unformatted text preview: in great demand hours after its release in Russia in early 2004. Do these people have both willingness and ability to purchase? Section 1 Understanding Demand 91 04 (086-109) EMC Chap 04 11/17/05 4:36 PM Are the Prices at Disneyland Goofy? ??? Page 92 \$126. Disneyland does not charge visitors double its one-day ticket price for visiting two days; it charges \$85. Similarly, triple the price of a T he Walt Disney Company operates two major theme parks in the United States: Disneyland in Anaheim, California, and Walt Disney World in Orlando, Florida. Each year millions of people visit each park. Regardless of which park you visit, the price you pay for your ticket will depend on how many days you want to spend at the park. For example, Disneyland’s Web site lists prices for one- to five-day tickets. On the day we checked, the various ticket prices were as follows: • • • • • One-day ticket, \$63 Two-day ticket, \$85 Three-day ticket, \$109 Four-day ticket, \$129 Five-day ticket, \$139 Notice that the price of a oneday ticket (\$63), when doubled, is one-day ticket would be \$189, but Disneyland charges \$109 for a three-day ticket. Disneyland seems to be telling visitors that if they want to visit the theme park for one day, they have to pay \$63, but a second day will cost only \$22 more, not \$63 more. Notice that the price Disneyland charges to stay a fifth day is only \$10 more than staying four days. Do you wonder how much Disneyland would charge to stay, say, a tenth day? By the tenth day, The Law of Demand in Numbers and Pictures demand schedule The numerical representation of the law of demand. 92 Chapter 4 Demand The law of demand can be represented both in numbers and pictures. Look at Exhibit 4-1(a), which has a “Price” column and a “Quantity demanded” column. Notice that as the prices fall (from \$4 to \$3 to \$2 to \$1), the quantity demanded rises (from 1 to 2 to 3 to 4). Do you see that price and quan- it might be that you would only have to pay 25 cents more. Why does Disneyland charge less for the second day than the first day? It’s because of the law of diminishing marginal utility, which states that as a person consumes additional units of a good, eventually the utility (satisfaction or happiness) from each additional unit of the good decreases. Disneyland can’t charge as high a price when utility is low as when it is high. If you have never been to Disneyland, or haven’t been for five years, your first day is likely to be quite enjoyable. If you’ve already spent, say, two days at Disneyland, your third consecutive day isn’t likely to give you as much utility as your first. THINK ABOUT IT Can you think of a good or service that is priced the way visits to Disneyland are priced (for two units of the good or service, you pay less than double what you pay for one unit)? tity demanded are moving in opposite directions? The economic term for this type of numerical chart showing the law of demand is demand schedule. Now let’s see how you would illustrate the law of demand in picture form. The simple way is to plot the numbers from a demand schedule in a graph. Look at Exhibit 4-1(b), which shows how the combinations of price and quantity demanded 11/17/05 4:36 PM Page 93 in Exhibit 4-1(a) are plotted. The first combination (a price of \$4 and a quantity demanded of 1) is labeled as point A. The second price and quantity demanded combination (\$3 and a quantity demanded of 2) is labeled B. The same process continues for points C and D. If we connect all four points, from A to D, we have a line that slopes downward from left to right. This line, called a demand curve, is the graphic representation of the law of demand. You might be wondering why we use the word curve when, as you can see in Exhibit 4-1(b), we ended up drawing a straight line to represent demand. The answer has to do with the standard practice in economics, which is to call the graphic representation of the relationship between price and quantity demanded a demand curve, whether it is a curve or a straight line. EXHIBIT 4-1 Demand Schedule and Demand Curve Price (in dollars) Quantity demanded (in units) \$4 3 2 1 1 2 3 4 (a) A \$4 Price (in dollars) 04 (086-109) EMC Chap 04 Demand curve B \$3 C \$2 D \$1 QUESTION: I’ve seen a car, a radio, and a diamond ring in the real world, but I’ve never seen a demand curve in real life. (I have seen one in this textbook, though.) Do demand curves exist in the real world? ANSWER: If you go outside and look up into the sky, you’re not going to see a demand curve. If you look under your bed or in the school auditorium, you won’t see a demand curve, which doesn’t mean that demand curves don’t exist in the real world. (You also can’t see a virus with the naked eye, but that doesn’t mean viruses don’t exist.) The data (numbers) that make up a demand curve—combinations of price and quantity demanded—do exist in the real world. When people (in the real world) buy more of a good (such as a can of soda or a new pair of jeans) at a lower price than at a higher price, they...
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