ECONOMÍA DE MINERALES

DEMAND AND UTILITY

Asieh Hekmat
The Basic Decision-Making Units
A firm is an organization that transforms resources
(inputs) into products (outputs). Firms are the primary
producing units in a market economy.

An entrepreneur is a person who organizes, manages,

and assumes the risks of a firm, taking a new idea or a
new product and turning it into a successful business.

Households are the consuming units in an economy.

Input Markets and Output Markets
Output, or product, markets are the markets in which goods and services are
exchanged.

Input markets are the markets in which resources—labor, capital, and land—used to
produce products, are exchanged.
– The labor market, in which households supply work for wages to firms that
demand labor.

– The capital market, in which households supply their savings, for interest or for
claims to future profits, to firms that demand funds to buy capital goods.

– The land market, in which households supply land or other real property in
exchange for rent.
Demand

Demand is the relation between the various possible prices of a

product and the amounts of it that consumers are willing and able
to buy during some period of time, other economic factors
remaining the same.

Difference between “willing and able to buy” ?

A consumer’s desire or willingness to purchase a
product has no impact on demand if the consumer
does not have the purchasing power to buy the
product. In many cases, consumption (or use) is a
proxy for demand because products were actually
purchased by the consumer.
Determinants of Household Demand
A household’s decision about the quantity of a particular output to demand
depends on:

■ The price of the product in question.

■ The income available to the household.
■ The household’s amount of accumulated wealth.
■ The prices of related products available to the household.
■ The household’s tastes and preferences.
■ The household’s expectations about future income, wealth,
and prices.
Quantity Demanded
Quantity demanded is the amount (number of units) Quantity of
Price
of a product that a household would buy in a given demand
$30 0
time period if it could buy all it wanted at the current
$25 0
market price. $20 1
$15 3
A demand schedule is a table showing how much of
$10 5
a given product a household would be willing to buy
$5 8
at different prices.
Individual Demand Curve
The demand schedule information can also be shown in graph form. The graph is called
the individual demand curve, which is just a graph showing the quantity of demand for a
certain individual at each price that might be used in the market at a given time.

Quantity of 35
Price
demand 30
25
$30 0
20

Price
$25 0 15
$20 1 10

$15 3 5
0
$10 5 0 1 3 5 8
Quantity
$5 8
Law of demand
■ The Law of Demand means that the quantity demanded of a good/service varies
inversely with its price. In other words, when the price is high, the quantity
demanded goes down.
■ A high price discourages people from buying a product. As the price of a product
rises, consumers will buy less of it.
Demand and marginal utility
■ Utility is the amount of usefulness/satisfaction one gets from using a product.
■ Marginal utility is the extra usefulness/satisfaction one gets from getting or using
one more unit of a product.
■ We buy things because we feel the product is useful to us, but as we use more and
more of a product we experience diminishing marginal utility. The principle of
diminishing marginal utility states that the satisfaction we gain from buying a
product lessens as we buy more of the same product.
■ As we use more of a product, we are not willing to pay as much for it. Therefore, the
demand curve is downward sloping.

Negative marginal utility Zero marginal utility Positive marginal utility

Diminishing marginal utility Increasing marginal utility

Question
This graph shows Christine's marginal utility of yogurt in a week.

What is Christine's total utility if she

consumes four cartons of yogurt in a
week?

a) 38

b) 42

c) 12

d) 6

e) 36
Group think time 

Explain how the slope of

the demand curve can be
explained by the principle
of diminishing / increasing
marginal utility.
Demand curve

Demand curves intersect the quantity

(X)-axis, as a result of time limitations
and diminishing marginal utility.

Demand curves intersect the (Y)-axis,

as a result of limited incomes and
wealth.
Income and Wealth
■ Income is the sum of all households wages, salaries, profits, interest payments,
rents, and other forms of earnings in a given period of time.

■ Wealth, or net worth, is the total value of what a household owns minus what it
owes..
Shift of Demand Versus Movement Along a Demand
Curve

• A change in demand is not the

same as a change in quantity
demanded.

• In this example, a higher price

causes lower quantity
demanded.

• Changes in determinants of demand,

other than price, cause a change in
demand, or a shift of the entire
demand curve, from DA to DB.
A Change in Demand Versus a Change in Quantity Demanded

When demand shifts to the right,

demand increases. This causes
quantity demanded to be greater
than it was prior to the shift, for each
and every price level.

Higher income increases the demand

for a normal good.

Higher income decreases the

demand for an inferior good
Normal goods/ Inferior goods

Normal Goods are goods for which demand goes up when income is higher and for
which demand goes down when income is lower.
Inferior Goods are goods for which demand falls when income rises.
P
P

Quantity
Quantity

Ingreso
Demand and quantity demand
Demand: the combination of prices and quantities demanded
Quantity demanded: A particular point on the demand curve
Demand and quantity demand

■ We have a demand curve for a Brand x of car

– Car dealesships slash prices by 10%

– The price of gasoline increases
– Prices of public transportation goes down
– The state lowers vehicle registration fees.
– A recession leads to falling household incomes
– Consumers expect new car price to rise next year
Individual/ Market demand

Market demand is the sum of all the quantities of a good or service demanded per
period by all the households buying in the market for that good or service.

Individual demands
Demand in mineral industry
World demand of material will be affected by
three general factors:

– Use of mineral commodities

– Level of population that will consume

these mineral commodities

– Standard of leaving that will determine

just how much each person consumes

As a new materials and applications are found,

markets for mineral commodities can expand
considerably (ex. Strontium, Cobalt, Lithium…)
World Population Growth Projections