chapter 04 demand upload version
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Splash Screen
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Section 1-Preview
Section Preview
In this section, you will learn that you express demand for a product when you are willing and able to purchase it.
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Section 1-Key Terms
Content Vocabulary
• demand
• microeconomics
• market economy
• demand schedule
• demand curve
• Law of Demand
• market demand curve
Academic Vocabulary
• marginal utility • diminishing marginal utility
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Section 1
What is Demand?
• Demand for a product is more than having the desire to own an item. Demand includes the ability and willingness to pay for it.
• Microeconomics is the part of economic theory that deals with behavior and decision making by individuals and firms.
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Section 1
An Introduction to Demand (cont.)
• Demand is central to a market economy.
• Demand involves three variables:
The Demand for Compact Digital Discs
– Price
– Quantity of a specific product
– At a given point in time
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Section 1
An Introduction to Demand (cont.)
• A demand schedule shows the various quantities demanded of a good at all prices that might prevail in the market at a given time.
• A demand schedule shown graphically is a demand curve.
The Demand for Compact Digital Discs
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Copyright © 2004 South-Western
Price ofIce-Cream Cone
0
2.50
2.00
1.50
1.00
0.50
1 2 3 4 5 6 7 8 9 10 11 Quantity ofIce-Cream Cones
$3.00
12
1. A decrease in price ...
2. ... increases quantity of cones demanded.
An Introduction to Demand (cont.)
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Figure 1
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Shifts in the Demand Curve
• Change in Quantity Demanded–Movement along the demand curve.–Caused by a change in the price of
the product.
An Introduction to Demand (cont.)
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0D
Price of Ice-Cream Cones
Quantity of Ice-Cream Cones
A tax that raises the price of ice-cream cones results in a movement along
the demand curve.
A
B
8
1.00
$2.00
4
An Introduction to Demand (cont.)
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Figure 3
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Section 1
The Law of Demand
There is an inverse relationship between the price of an item and the quantity demanded.
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Section 1
• Higher prices are associated with smaller amounts demanded on most goods or services we buy. This is the Law of Demand.– Quantity demanded varies inversely with
its price. All other things being equal:
↑P ►↓QD or ↓P ►↑QD
The Law of Demand (cont.)
• The market demand curve shows quantities demanded by everyone in the market who is interested in the product/service. Individual and Market
Demand Curves
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Law of Demand The Law of Demand states that when the price goes up, quantity demanded goes down. When the price goes down, quantity demanded goes up.
VS 1
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Section 1
Demand and Marginal Utility
As we buy more of an item, we get less satisfaction from each additional purchase.
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Section 1
• Utility is the amount of product satisfaction or usefulness one receives from its use.
• Marginal utility explains much about demand.
• As we use more of a product, we encounter diminishing marginal utility.
Demand and Marginal Utility (cont.)
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Section 2
Change in the Quantity Demanded
Only a change in price can cause a change in quantity demanded.
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Section 2
Change in the Quantity Demanded (cont.)
• When only the price changes and all else remains constant, there is a change in the quantity demanded.
– Income effect
– Substitution effect
• A change in quantity demanded is a movement along the original demand curve.
Change in the Quantity Demanded
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Section 2
Change in Demand
Several factors can cause the demand curve to shift.
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Section 2
• Factors other than price can cause a change in demand.
• A change in demand results in an entirely new demand curve.
Change in Demand (cont.)
Change in Demand
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Section 2
• Factors for demand changes
– Consumer income
– Consumer tastes
– Price of related goods
Change in Demand (cont.)
• Substitutes
• Complements
Change in Demand
– Expectations
– Number of consumers
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VS 2
Change in Demand When a change in demand occurs, people want to buy different amounts of a product at the same price. A change in demand can happen for several reasons.
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Shifts in the Demand Curve
• Change in Demand–A shift in the demand curve, either
to the left or right.
–Caused by any change that alters the quantity demanded at every price.
Change in Demand (cont.)
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Figure 3 Shifts in the Demand Curve
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
Quantity ofIce-Cream Cones
Increasein demand
Decreasein demand
Demand curve, D3
Demandcurve, D1
Demandcurve, D2
0
Change in Demand (cont.)
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This demand curve has shifted to the right. Quantity demanded is now higher at any given price.
Change in Demand (cont.)
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Figure 4
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Section 3-Preview
Section Preview
In this section you will learn about the factors that influence the size of a change in quantity demanded.
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Section 3-Key Terms
Content Vocabulary
• elasticity
• demand elasticity
• elastic
• inelastic
• unit elastic
Academic Vocabulary
• technical • adequate
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Section 3
Elasticity of Demand
• An important cause-and-effect relationship in economics is elasticity.
Profiles in Economics:Oprah Winfrey
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Section 3
Demand Elasticity
When the price of an item changes, the change in quantity demanded can vary a little or a lot.
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Section 3
Demand Elasticity (cont.)
• Consumers react to changes in price by changing the quantity demanded. The size of the reaction is demand elasticity.
• Demand can be
– Elastic—fresh produce
– Inelastic—table salt
– Unit elastic
Demand Elasticity and the Total Expenditures Test
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DFS Trans 3
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Section 3
Determinants of Demand Elasticity
The answers to three questions help determine a product’s demand elasticity.
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Section 3
• Must answer three questions to determine if a demand for a good is elastic or inelastic.
– Can the purchase be delayed?
– Are adequate substitutes available?
– Does the purchase use a large portion of income?
Determinants of Demand Elasticity (cont.)
Determinants of Demand Elasticity
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VS 3
Demand and Elasticity Changes in price and total expenditures help determine the demand elasticity of a product.