Demand 1 Demand analysis intuition Marginal CostMarginal Benefit

Demand 1

Demand analysis - intuition Marginal Cost/Marginal Benefit analysis of consumers If Marginal Benefit > Marginal Cost, buy it If Marginal Benefit < Marginal Cost, don’t buy it n Marginal Benefit is reflected by what consumer is willing to pay. Marginal Cost is price of item. 2

Demand for Adam Humphrey’s Visa Service (based on individual’s willingness to pay) Depends on, n Price of Service n Individual’s Income n Price Associated with Doing it at Burger King n How much does the person really want to go to China or how big a hassle is it to come back. n Number of Individuals going to Chinese Consulate for visa.

Demand for Adam Humphrey’s Visa Service

Market Demand for Adam Humphrey’s Visa Service Obtained by summing all individual demands. Depends on, n All factors that affect individuals’ demands (price of service, income, price of related goods, tastes/preferences, expectation of future prices, etc. ) n Number of Individuals (population)

Individuals Can Demand Multiple Units

Demand = Willingness to Pay Consumer Surplus (The value consumers get from a good but do not have to pay for. ) P=35

Demand Function for Good X QDx = f(Px, PY, M, H 1 , H 2, …) where, Px is the price of good X, PY is the price of good Y, M is income, H 1 is size of population, H 2 is consumers’ expectations, … On the prior graph for Adam Humphrey’s Service, QDx=50 -Px 8