How do economists define demand?

Demand refers to the amount of a good or service that people are

willing and able to buy at a specified price.

What is the difference between demand for a good and consumer

interest in a good?
For economists, consumer interest in a good is broader and less
reliable than actual demand for that good. People might have a vague
interest in a good but neither the ability nor the willingness to actually
purchase it at a specific price. In ascertaining demand, economists are
looking for more precise information. They want to know how many
people are actually willing and able to buy a good at a particular price.

What is the law of demand?

This fundamental economic principle states that as prices for a good
or service rise demand falls, and as prices fall demand rises.

What factors influence demand?

Economists usually identify five main factors shaping demand:
diminishing marginal utility, income, substitution goods,
complementary goods, and consumer tastes.

What is diminishing marginal utility?

This is economic law stating that the amount of satisfaction derived
from a particular good or service will diminish with each successive
purchase of that good or service. The first donut you buy, for example,
may satisfy your hunger, but each successive purchase will bring you
less and less satisfaction.

How does income affect demand?

As incomes change demand changes. When a persons income
declines, his willingness and ability to purchase an item at a given
price will also decline. When a persons income increases, his
willingness and ability to purchase an item at a given price will also
increase.

What are substitution goods?

Substitution goods are goods that satisfy the same need as another
good, such as Pepsi and Coke. When the price of one changes,
demand for the other is affected.

What are complementary goods?

Complementary Goods are goods that go together or are related, such
as cameras and film. Demand for one is linked to demand for the
other. If the price of one increases, demand for the other will fall and
vice versa.

How do consumer tastes affect demand?

As consumers tastes change, demand is affected. The demand for a
particular item of clothing, for example, is highly sensitive to changing
consumer tastes in fashion.

Is the demand for all goods equally sensitive to price changes?

No, the demand for some goods is less sensitive to price changes
than others. Economists use the term elasticity of demand in
referring to the price sensitivity of the demand for a particular good. If
the demand for a good is sensitive to price changes, it is called elastic.
If the demand for a good is not sensitive to price changes, it is called
inelastic.

Why is the demand for some goods inelastic?

If a good is essential and we cannot do without it, demand for the
good will remain constant regardless of changes in price. Medicine
and milk are basic necessities; we will buy them even if the price rises.
We will also continue to buy products if there is no substitute or
alternative for that product. We cant substitute water for gasoline;
face power is white but it is no substitute for salt. And if a good is
cheap, we will buy it even if its price rises. We would spring for a box
of matches, even if the price jumped from 79 cents to $1.25.

Complementary Goods

Goods that go together or are related, such as cameras and film.

Demand for one is linked to demand for the other. If the price of one
increases, demand for the other will fall and vice versa.

Consumer Tastes

A factor shaping demand. As consumers tastes change, for example

in fashion, demand is affected.

Demand

The amount of a good or service that people are willing and able to
buy at a specified price.

Diminishing Marginal Utility

Economic law stating that the amount of satisfaction derived from a

particular good or service will diminish with each successive purchase
of that good or service.

Equilibrium Price

The point at which supply and demand intersect. The price at which
consumers willingness and ability to purchase a good or service
converges with producers willingness and ability to supply that good
or service.

Income Effect on Demand

As incomes change, demand changes. If peoples income declines,
their willingness and ability to purchase an item at a given price will
also decline. If peoples income increases, their willingness and ability
to purchase an item at a given price will also increase.

Law of Demand

This fundamental economic principle states that as prices rise demand

will fall, and as prices fall demand will rise.

Law of Supply

This fundamental economic principle states that as prices rise, supply

will increase (in part because people who make the stuff will be
excited to sell whatever it is for more money). And as prices fall,
supply will decrease (some suppliers will go out of business or choose
to make something that is worth more).

Example

Ryan Gosling declares his love of pretzels and suddenly everyone

wants to buy pretzels to be just as cool. The price of pretzels goes up
until each one costs $6. A bunch of people who are sitting around
wondering what to do with their lives suddenly say "I know! I'll start
making pretzels! I can make a bunch of cash because fools are buying
them for $6 each."

Maybe before the Ryan Gosling announcement, there were 100

million pretzels made in the U.S. each year. With the great Pretzel
Craze, there's now 200 million pretzels being made because the price
went up.
But then, Ryan Gosling announces he hates pretzels now. Prices drop
to a more reasonable $3 per pretzel. Everyone with a pretzel Pinterest
board and blog stops talking pretzels and some of those people
making soft dough start making other stuff, instead. It's no fun making
pretzels when you're making half as much money for them.

In the next year, the U.S. is back to making 100 million pretzels a year.

Microeconomics

The study of individuals, households, and firms, and how they make
economic decisions. This is in contrast to macroeconomics, which
focuses on the economic actions, in aggregate, of whole societies.

Oligopoly

An industry that is controlled by a small number of competitors.

Collusion between these companies is prohibited, but its very difficult,
if not impossible, for a new company to join the oligopoly. New
participants may be barred by prohibitive start-up costs, or they may
be shut out of a market because consumer attachment to an
established brand may be too strong to challenge. The auto and oil
oligopolies enjoy the first advantage; the soft drink oligopolies enjoy
the second.

Price Elasticity of Demand

Refers to the extent to which the price of a particular product affects

demand for that product. For products with inelastic demand,
demand does not change when prices rise and fall. For products with
elastic demand, demand does change when prices rise and fall.
Price Fixing

A form of collusion in which competitors agree to a common pricing

schedule. Price fixing is illegal.

Substitution Goods

Goods that satisfy the same need as another good, such as Pepsi and
Coke. When the price of one changes, demand for the other is
affected.

Demand curve, in economics, a graphic

representation of the relationship between
product price and the quantity of the product
demanded.
This relationship is contingenton certain ceteris
paribus (other things equal) conditions remaining
constant. Such conditions include the number of
consumers in the market, consumer tastes or
preferences, prices of substitute goods, consumer
price expectations, and personal income.
Supply curve, in economics, graphic representation
of the relationship between product price and quantity
of product that a seller is willing and able to supply.

Supply and Demand

Understanding the laws of supply and demand are central to understanding how the capitalist economy
operates. Since we rely on market forces instead of government forces to distribute goods and services
there must be some method for determining who gets the products that are produced. This is where
supply and demand come in. By themselves the laws of supply and demand give us basic information,
but when combined together the are the key to distribution in the market economy... price.
What is demand?

Demand is comprised of three things.

Desire

Ability to pay

Willingness to pay

It is not enough to merely want or desire an item. One must show the ability to pay and then the
willingness to pay. If all three conditions are not me then the demand is not real. This, by the way, is the
purpose of advertising. While many may want a product it is quite another to be willing to pay. Advertising
attempts to move a consumer from mere want to action. These day even condition two may not stand in
the way of a consumer. With the advent of credit cards we are able to purchase products without the
current ability to pay. Many stores and car dealers even offer on the spot credit though the interest rate
may be quite high.

What factors alter your desire, willingness and ability to pay for products? Some factors include consumer
income, consumer tastes the prices of related products like substitutes for that product of items that may
complement that product.

Marginal utility - extra satisfaction a consumer gets by purchasing one more unit of a product.

Diminishing Marginal Utility: The more units one buys the less eager one is to buy more. Think of
diminishing marginal utility this way. It is a hot summer day and your sweating bullets. You come across a
lemonade stand and gulp down a glass. It tasted great so you want another. This second glass is
marginal utility. But now you reach for a third glass. Suddenly your stomach is bloated and your feeling
sick. That's diminishing marginal utility!

There are two types of changes in demand:

Changes in demand - change in the demand for a product that occurs when price drops.

Changes in the Quantity Demanded - change in the amount of a product demanded regardless of price.

The difference is subtle but important. If the demand of ice cream goes up in the summer it is because
consumers demand has truly increased, clearly it is hot. In the case the business can most likely raise
prices without suffering a drop in sales. This is a change in quantity demanded. If sales of ice cream were
to increase in January as a result of a price cut, however, the information we would be receiving is that
the demand was artificially manipulated. It really tells us that actual demand is low and that extra efforts
had to be made to increase sales. This is change in demand.

When there is a change in amount purchased (tied to demand) due to lower prices and surplus spending
money it is called the income effect. Income effect basically happens when salaries are on the rise.

Another economic phenomenon tied to demand is Substitution Effect. This states that as prices drop
consumers will buy more than usual at the expense of a different product. Take a sale at the mall for
example. If jeans are on sale for a great price consumers will by extra jeans even if they had previously
planned to buy something else. This is that great deal you just cannot pass up. What would the
opportunity cost be? That item you passed up and substituted for.
The Law of Demand:

quantity demanded in inversely proportional to price.

Simply put, the higher the price, the lower the demand and the lower the price, the higher the demand.

In numbers it would look like so:

Demand Schedule for Cookies

At a price of Consumer will buy

.70 cents 100 cookies
.60 200
.50 400
.40 700
.30 1,100
.20 1,600
.10 2,300

Economists also like to look at things graphically. It enables us to see the quantity and price on a limitless
scale. To do this we plot what is known as a demand curve. The price is always on the vertical axis and
the quantity is always on the horizontal axis. If we were to plot our points and draw a demand curve for
the cookies it would look like this:
The Law of Supply-

Quantity supplied is directly proportional to price.

Clearly the law of supply is the opposite of the law of demand. Don't these both make sense to you?
Consumers want to pay as little as they can. They will buy more as the price drops. Sellers, on the other
hand, want to be able to charge as much as they can. They will be willing to make more and sell more as
the price goes up. This way they can maximize profits.

Numerically a supply schedule would look like this:

Supply Schedule for Cookies

At a price of Sellers will offer

.70 cents 2,000 cookies
.60 1,800
.50 1,600
.40 1,400
.30 1,100
.20 700
.10 100

The accompanying supply curve would be drawn like so:

Market or Equilibrium Price

Now that we have covered both demand and supply we have to combine both together. The place where
what sellers are willing to sell for and buyers are willing to buy for is calledmarket or equilibrium price.
This is the price the product will sell for. Price is negotiation between the buyers and the sellers.

To figure out price one has to law the supply and demand next top each other.

Supply and Demand of Chocolate Chip Cookies

Students will buy At a price of Sellers will offer

100 .70 cents 2,000
200 .60 1,800
400 .50 1,600
700 .40 1,400
1,100 .30 1,100
1.600 .20 700
2,300 .10 100

When we then plot and draw both curves together we are able to see the market price of the product.

The market price for cookies in this graph is 30 cents. The quantity sold and bought is 1100
cookies.
WHY PRICES ARE IMPORTANT IN A MARKET ECONOMY

Prices are key ingredients in our economy because they make things happen. If buyers want to own
some items badly enough, they will pay more for them. When sellers want to sell some items badly
enough, they will lower their prices. Prices play such an important role in economic life that the United
States is often described as a price-directed market economy. Let us see why.

1. Act as Signals to Buyers and Sellers. One of the things that prices do is carry information to buyers and
sellers. When prices are low enough, they send a "buy" signal to buyers (consumers), who can now afford
the things they want. When prices are high enough, they send a "sell" signal to sellers (retailers), who can
now earn a profit at the new price.

2. Encourage Efficient Production. Prices encourage business people to produce their goods at the lowest
possible cost. The less it costs to produce an item, the more likely it is that its producers will earn a profit.

Firms that are efficient will produce more goods with fewer raw materials than firms that are inefficient.
Producers strive for efficiency as a way of increasing their profits. While these efforts are in the best
interests of the sellers, all of us may benefit because we are provided with the things we want at lower
costs.

3. Determine Who Will Receive the Things Produced. Finally, prices help to determine who will receive
the economy's output of goods and services. The price that a worker receives for doing a job is called a
wage. The amount of this wage determines how much the worker has to spend. What the worker can buy
with those wages will depend, in turn, upon the prices of the goods and services the worker would like to
own.

Basic Elements of Supply and Demand

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1. Study Guide (Course-wide Content)

1. The analysis of supply and demand shows how a market

mechanism solves the three problems of what, how, and for
whom. A market blends together demands and supplies. Demand
comes from consumers who are spreading their dollar votes
 among available goods and services, while businesses supply the
goods and services with the goal of maximizing their profits.

A. The Demand Schedule

2. A demand schedule shows the relationship between the quantity

demanded and the price of a commodity, other things held
constant. Such a demand schedule, depicted graphically by a
demand curve, holds constant other things like family incomes,
tastes, and the prices of other goods. Almost all commodities
obey the law of downward-sloping demand, which holds that
quantity demanded falls as a good's price rises. This law is
represented by a downward-sloping demand curve.

3. Many influences lie behind the demand schedule for the market
as a whole: average family incomes, population, the prices of
related goods, tastes, and special influences. When these
influences change, the demand curve will shift.

B. The Supply Schedule

4. The supply schedule (or supply curve) gives the relationship

between the quantity of a good that producers desire to sell
other things constantand that good's price. Quantity supplied
generally responds positively to price, so the supply curve is
upward-sloping.

5. Elements other than the good's price affect its supply. The most
important influence is the commodity's production cost,
determined by the state of technology and by input prices. Other
elements in supply include the prices of related goods,
government policies, and special influences.

C. Equilibrium of Supply and Demand

6. The equilibrium of supply and demand in a competitive market

occurs when the forces of supply and demand are in balance. The
 equilibrium price is the price at which the quantity demanded just
equals the quantity supplied. Graphically, we find the equilibrium
at the intersection of the supply and demand curves. At a price
above the equilibrium, producers want to supply more than
consumers want to buy, which results in a surplus of goods and
exerts downward pressure on price. Similarly, too low a price
generates a shortage, and buyers will therefore tend to bid price
upward to the equilibrium.

7. Shifts in the supply and demand curves change the equilibrium

price and quantity. An increase in demand, which shifts the
demand curve to the right, will increase both equilibrium price
and quantity. An increase in supply, which shifts the supply curve
to the right, will decrease price and increase quantity demanded.

8. To use supply-and-demand analysis correctly, we must (a)

distinguish a change in demand or supply (which produces a shift
of a curve) from a change in the quantity demanded or supplied
(which represents a movement along a curve); (b) hold other
things constant, which requires distinguishing the impact of a
change in a commodity's price from the impact of changes in
other influences; and (c) look always for the supply-and-demand
equilibrium, which comes at the point where forces acting on
price and quantity are in balance.

9. Competitively determined prices ration the limited supply of

goods among those who demand them.

10. WARNING::THIS IS DETAILED EXPLANATION..

11.given,there are a total of 66 handshakes.
12. let total no of people be x;
13. no of handshakes that the first person will have=(x-1)
because he cannot have handshake with himself
14. no of handshakes that the second person will have=(x-2)
because he cannot have handshake neither with himself nor the
first person.
15. no of handshakes the third person will have = (x-3)
16. the pattern continues.
17. total no of handshakes=(x-1)+(x-2)+(x-3)+(x-4)+(x-5)
.so on.
18. this can be termed as the sum of first (x-1) terms,which is
(x-1)(x-1+1)/2
19. so,total no of handshakes = (x-1)(x-1+1)/2
20. according to the question:
21. = (x-1)(x-1+1)/2=66
22. =(x-1)(x)/2=66
23. =x^2-x=132
24. =x^2-x-132=0
25. now,this is called a quadratic equation where the formula
26.

27. can be applied.

28. now, 1 x^21x-132=0
29. a=1, b=-1, c=132
30. according to the formula, upon substituting we get:
31. x=11241132
21.x=1124113221.
32. x=11+5282.x=11+5282.
33. x=15292.x=15292.
 34. x=1232x=1232
35. x=1+232=12x=1+232=12(and) x=1232=11x=1
232=11
36. the answer is 12 because there cannot be -11
persons
37. YOU MAY LOOK AT THIS FOR A BETTER
UNDERSTANDING
38. Carl Friedrich Gauss (1777-1855) is credited with
finding the formula for computing the sum of the
first n consecutive numbers when he was an elementary school
student, at age 8. The teacher had asked the students to compute
the sum (S) of the first 100 integers. To the teacher's
astonishment, Gauss was able to do it very quickly by noticing
that the sum of the sequence and the reverse sequence produced
a series of constants.
39. S = 1 + 2 + 3 + ... + 100
S = 100 + 99 + 98 + ... + 1
2S = 101 +101 +101 + ... + 101 = 100101

S = (100101)/2 = 5,050
40. The symmetry of the solution can also be observed with a
graphical representation:

41.
42. 1.3k Views View Upvotes
43. The Handshake Problem
Topic Classification: nid, "Topic Classification"); ?> Tag
Grade Vs Difficulty:

1-2
3-4
5-6
7-8
9-10
11-12
13-14
44. This is a classic problem and is a lot of fun for this age group
(and older children, who could move through it at a faster pace).
The basic problem is this: if you have a room full of people and
everyone shakes hands, how many total handshakes are there?
Some basic ground rules (that are good to have the children come up
with): you don't shake hands with yourself; you only shake hands
once with another student.
45. We did this with 1st, 2nd and 3rd graders. We demonstrated
with 2 people, then 3 people, then 4 people and kept track of the
number of handshakes. They split into groups and tried to figure out
how many handshakes there would be if all 20 of them shook hands.
Encourage them to write it out in a table, to try it themselves (lots of
noise with that, but fun) and to look for patterns. The table should
contain this information:
2 people, 1 handshake
3 people, 3 handshakes
4 people, 6 handshakes
5 people, 10 handshakes
6 people, 15 handshakes
46. Eventually they see that every time a new person joins the
group, that person has to shake hands with everyone else in the
group. So when the group goes from 6 people (with 15 handshakes)
to 7 people, that 7th person has to shake hands with 6 people. The
new total is 21.
47. The pattern they should see is that if there are n people in the
group, then the number of handshakes is
1 + 2 + 3 + 4 + 5 +... + (n-1).
48. We went through it again to make sure we believed it for our
table (write 15 = 1 + 2 + 3 + 4 + 5) and then they had a challenge:
what if 100 people shook hands. How many handshakes would there
be?
49. The students who see the pattern will know that it should be
1 + 2 + 3 + 4 + ... + 97 + 98 + 99
but they are not sure how to add all of those numbers. Again we go
back to an easier example, say 10 people, and use grouping to do
the addition. Ideally they should pair up the numbers so that they add
to 10. So
 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 = (1 + 9) + (2 + 8) + (3 + 7) + (4 + 6)
+5 = 10 + 10+ 10+ 10 + 5 = 45.
50. Once they get this, they can work on adding the numbers 1 to
99. It takes awhile but they should see that it's 49(100) + 50=4950.
51. From here it can go several different ways. They could try to
figure out how many handshakes with 1000 people using the same
approach or they could try more examples. the idea is to get them to
the pattern that makes it easy to add these numbers. That is, that
1 + 2 + 3 + 4 + 5 +... + (n-1) = n(n-1)/2.
52. This is a lot to do. It took us 3 weeks to go through all of this
carefully (with a lot of reviewing each week) but they saw the
connections and had a lot of fun with it.