demand. outline i. what is demand? a. demand schedules b. the law of demand c. demand curves/market...
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DemandDemand
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OutlineOutline
I. What is Demand?A. Demand SchedulesB. The Law of DemandC. Demand Curves/Market Demand
II. Change in Demand vs. Change in Quantity DemandedA. Change in DemandB. Change in Quantity Demanded
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What is Demand?What is Demand?
As we discussed earlier - there is a limited amount of goods out there. So how do we decide what we want? The concept of demand captures this issue. Demand is made up of two elements:
– Desire for Goods and Services– Means to purchase those Goods and Services
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Demand SchedulesDemand Schedules
• Lets consider how many CDs you might demand in a month. (This is called “Quantity Demanded”)
• We will first look at this information in a table called a “Demand Schedule”
• Demand Schedule - a table showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus. – ceteris paribus: means "assuming all else is held
constant". The attempt to distinguish an effect of one kind of change from any others.
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Demand ScheduleDemand Schedule
Price of CDs ($) Quantity Demanded per month
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Demand ScheduleDemand Schedule
P ($) Qd
$20 5
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Demand ScheduleDemand Schedule
P ($) Qd
$20 5
$15 7
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Demand ScheduleDemand Schedule
P ($) Qd
$20 5
$15 7
$10 15
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Law of DemandLaw of Demand
• Law of Demand - the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus.
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Demand Schedules and CurvesDemand Schedules and Curves
• Another way of characterizing Demand instead of using a schedule is a Demand Curve.
• Demand Curve - a diagram showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus.
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Demand CurveDemand Curve
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Demand CurveDemand Curve
P($)
Qd per month
Note: ALWAYS label your axes!
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Demand CurveDemand Curve
P($)
Qd per month
5
10
15
20
0 5 10 15
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Demand CurveDemand Curve
P($)
Qd per month
5
10
15
20
0 5 10 15
A
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Demand CurveDemand Curve
P($)
Qd per month
5
10
15
20
0 5 10 15
A
B
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Demand CurveDemand Curve
P($)
Qd per month
5
10
15
20
0 5 10 15
A
B
C
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Demand CurveDemand Curve
P($)
Qd per month
5
10
15
20
0 5 10 15
A
B
C
D
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Market Demand CurveMarket Demand Curve
• The demand curve we just drew was the Demand for CDs by one person.
• Market Demand Curve - a curve showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus.Market demand curves are obtained by summing the demand curves of individual consumers.
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Market Demand ScheduleMarket Demand Schedule
• Market Demand Schedule - a table showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus.
• Market demand schedules are obtained by summing the demand schedules of individual consumers.
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Market Demand ScheduleMarket Demand Schedule
P($) Mary’sQd
5 3
10 2
15 1
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Market Demand ScheduleMarket Demand Schedule
P($) Mary’sQd
John’sQd
5 3 12
10 2 8
15 1 3
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Market Demand ScheduleMarket Demand Schedule
P($) Mary’sQd
John’sQd
Tom’sQd
5 3 12 7
10 2 8 5
15 1 3 4
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Market Demand ScheduleMarket Demand Schedule
P($) Mary’sQd
John’sQd
Tom’sQd
MarketQd
5 3 12 7 22
10 2 8 5 15
15 1 3 4 8
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Change in Demand vs. Change in Change in Demand vs. Change in Quantity DemandedQuantity Demanded
This is a very important distinction. In short - a change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price.
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Change in D vs. Change in QChange in D vs. Change in Qdd
• Change in Demand - a change in the desire or means to purchase the good, thus there is a change in quantity demanded at EVERY price.
• Change in Demand - a shift of the demand curve• A demand curve is drawn under the assumption
of ceteris paribus.• When this assumption is relaxed, the entire demand curves
shifts
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Change in D vs. Change in QChange in D vs. Change in Qdd
• Changes in Demand• Increase in demand - demand curve shifts to the
right• Decrease in demand - demand curve shifts to
the left
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Change in Quantity DemandedChange in Quantity Demanded
• Change in Quantity Demanded (Qd) - movement along a demand curve• A change in quantity demanded can only be caused
by a change in the price of the good.
• Changes in Quantity Demanded• Increase in Qd - a movement to the right along a
demand curve
• Decrease in Qd - a movement to the left along a demand curve
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Increase in DemandIncrease in Demand
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Increase in DemandIncrease in Demand
P
Qd
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Increase in DemandIncrease in Demand
P
Qd
D
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Increase in DemandIncrease in Demand
P
Qd
D
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Increase in DemandIncrease in Demand
P
Qd
D D’
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Increase in QIncrease in Qdd
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Increase in QIncrease in Qdd
P($)
Qd
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Increase in QIncrease in Qdd
P($)
Qd
D
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Increase in QIncrease in Qdd
P($)
Qd
D
A
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Increase in QIncrease in Qdd
P($)
Qd
D
A
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Increase in QIncrease in Qdd
P($)
Qd
D
A
B