When you buy something, do you ever wonder why itsells at that particular price? Few individual consumersfeel they have any influence over the price of an item.In a market economy like ours, however, all consumersindividually and collectively have an influence on theprice of all goods and services. One way Americansinfluence prices in the marketplace is through demand.If you are interested in the prices you pay for goods and services, or why some people earn higher salariesthan others, you will be interested in learning howdemand works.

To learn more about demand, view the Economics & Youvideo lesson 5: What Is Demand?

Organizing Information Study Foldable Make the following foldable to helpyou organize information about demand in a market economy.

Step 1 Fold a sheet of paper intothirds from top to bottom.

Reading andWriting As you read the chapter,record your thoughtsand the informationyou learn aboutdemand in a marketeconomy in theappropriate columnsof your foldable.

Step 2 Turn the paper horizontally,unfold, and label the three columnsas shown.

446Demandshown by these people waitingto buy ticketsis the willingness to buy

a product at a particular price.

What Is Demand?

FactorsAffectingDemand

Descriptionof Factors

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Michele Burgess/Stock Boston

Chapter Overview Visit the CivicsToday Web site at civ.glencoe.comand click on Chapter OverviewsChapter 20 to preview chapterinformation.

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http://civ.glencoe.com

Have you ever noticed how pricesaffect the things we buy? Gas priceshave been up and downdramatically in the past five years,and they affect the types ofvehicles that we buy. A May2004 article in The ChristianScience Monitor tells about theimpact of high gas prices onone American icon - the gasguzzling SUV: Could theultimate soccer-mom icon reallybe on its way out? Reports offalling sales for the behemothsof the road . . . have fueledspeculation that Americansmay finally be shifting awayfrom the biggest-is-bestmentality. . . . In April, sales onlarge SUVs fell 15 percent from thesame period a year ago, . . .

An Introduction to DemandThe story above illustrates a key feature of the American

economy. In the United States, demand is affected by theprice we pay. To understand prices, you have to understandboth supply and demand.We will study demand in this chap-ter, seeing how it affects price and why it changes. In the nextchapter, we will study supply more closely. Then we will seehow supply and demand work together to set prices.

What is demand? The word demand has a specific mean-ing in economics. It refers to the desire, willingness, and abil-ity to buy a good or service. For demand to exist, a consumermust want a good or service. Second, the consumer has to bewilling to buy that good or service. Finally, the consumer musthave the resources available to buy it.

GUIDE TO READING

Main IdeaYou express yourdemand for a productwhen you are willing andable to purchase it.

Key Termsdemand, demand schedule, demand curve,law of demand, marketdemand, utility,diminishing marginal utility

Reading StrategyAnalyzing InformationAs you read the section,complete the diagramsbelow to illustrate the lawof demand.

Read to Learn What does it mean

when demand rises orfalls?

What does the law ofdemand state?

What Is Demand? SECTION

Motorist faces highgas prices

448 Chapter 20 DemandAaron Haupt

Prices

Rise

Quantity Demanded

Fall

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Chapter 20 Demand 449

The Individual Demand ScheduleA demand schedule is a table that lists

the various quantities of a product or ser-vice that someone is willing to buy over arange of possible prices. Look at thedemand schedule on this page. It showshow many video games George would bewilling to buy at different prices. For exam-ple, George would not purchase any videogames if they cost $50 each. If the pricewere only $20 per game, though, he wouldbe willing to buy two.

The Individual Demand CurveDemand can also be shown graphically.

A demand curve is a graph that shows theamount of a product that would be boughtat all possible prices in the market. Thecurve is drawn with prices on the verticalaxis and quantities on the horizontal axis.Each point on the curve shows how manyunits of the product or service an individualwill buy at a particular price.

Look at the demand curve on this page.Notice that each point matches the quantitylisted in the demand schedule. Georgewould buy five video games if the price were$5 each, three games at $10 each, and so on.

The Law of DemandLook at the graph again. As you see,

demand curves usually slope downwardbecause people are normally willing to buyless of a product if the price is high andmore of it if the price is low. According tothe law of demand, quantity demandedand price move in opposite directions.

Of course, this is just common sense.Think about your own buying habits.Arent you more interested in buying moreof something when the price is lower thanwhen the price is higher?

Comparing Describe therelationship between the demand scheduleand the demand curve.

Individual vs. Market DemandSo far we have been looking at only one

persons demand for a product or service.Companies hope to sell to many, many peo-ple, though.They have to take into accountthe demand of all those people. They areinterested in the market demandthetotal demand of all consumers for theirproduct or service.

An Individual Buyers Demand

DEMAND CURVE

PR

ICE

0

10

20

30

40

$50

1 2 3 4 5QUANTITY

Price Quantity

$50$40$30$20$10$5

011235

Demand Schedule

Demand is illustrated on a schedule or a curve.How many video games would George be willingto purchase at a price of $10 each?

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450 Chapter 20 Demand

Market demand can also be shown as ademand schedule or as a demand curve.See the examples at the top of this page.

Demand Illustrated A knowledge of demand is essential to

understand how a market economy works.As you read in Chapter 18, in a marketeconomy people and businesses act in theirown best interests to answer the WHAT,HOW, and FOR WHOM questions of pro-duction. Knowledge of demand is alsoimportant for sound business planning.

To illustrate, imagine you are opening abicycle repair shop. Before you begin, youneed to know where the demand is.You willwant to set up your shop in a neighborhoodwith many bicycle riders and few repairshops. After you identify an area in which tolocate the shop, how do you measure thedemand for your services? You may visitother shops and gauge the reactions of con-sumers to different prices. You may pollconsumers about prices and determinedemand from this data. You could studydata compiled over past years, which would

show consumer reactions to higher andlower prices. All of these methods wouldgive you a general idea as to the desire, will-ingness, and ability of people to pay.

Diminishing Marginal UtilityAlmost everything that we buy provides

utility, meaning the pleasure, usefulness,or satisfaction we get from using the prod-uct. The utility of a good or service mayvary from one person to the next. Forexample, you may get a great deal of enjoy-ment from a home computer, but yourfriend may get very little. Your friend maylove pepperoni pizza, but you may not. Agood or service does not have to have util-ity for everyone, only utility for some.

The utility we get from consumptionusually changes as we consume more of aparticular product. For example, when eat-ing pizza, you may be very hungry beforeyou eat the first slice, and so it will giveyou the most satisfaction. Because you arenot quite as hungry after consuming thefirst slice, you receive less marginal utility,or less additional satisfaction, from each

Market Demand

Price Total QuantityDemanded

$50$40$30$20$10$5

100150180230300400

Demand Schedule

The demand curve is the graphic repre-sentation of the law of demand. Whydoes the demand curve slope downward?

DEMAND CURVE

PR

ICE

0

10

20

30

40

$50

QUANTITY100 150 200 250 300 350 400

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Checking for Understanding1. Key Terms Use each of these

terms in a complete sentencethat helps explain its meaning:demand, demand schedule,demand curve, law of demand,market demand, utility.

Reviewing Main Ideas2. Explain What is the term for a

line plotted on a graph showingthe quantities demanded of agood or service at each possibleprice?

3. Explain According to the law ofdemand, what would happen ina situation in which the averageprice of concert tickets rosefrom $40 to $80?

Critical Thinking 4. Making Predictions You sell pop-

corn during your schools footballgames. Knowing that people usu-ally buy more when the price islower, how would you price yourpopcorn after halftime?

5. Making Predictions On a dia-gram like the one below, identifya relatively rare good or servicetoday that you think will be invery high demand in 20 years.Provide at least two reasons foryour prediction.

Analyzing Visuals6. Interpret Study the schedule and

graph illustrating market demandon page 450. What is the quantitydemanded at $30? What hap-pens to total quantity demandedas the price increases?

SECTION ASSESSMENT

additional slice that you eat.This illustrates diminishing marginal util