1 Demand SECTION 1: Nature of Demand SECTION 2: Changes in Demand SECTION 3: Elasticity of Demand CHAPTER 3

2 Difference between demand and the quantity demanded: demand—consumer demand at various prices quantity demanded—consumer demand at each particular price Nature of Demand SECTION 1

3 Law of demand: There is an inverse relationship between a product’s price and the quantity demanded. Nature of Demand SECTION 1

4 Demand Schedules Demand schedules show in table format the quantity of products consumers are willing to buy at a series of possible prices the quantity of products consumers are able to buy at a series of possible prices Graphing Demand SECTION 1

5 Catherine’s Demand Schedule Quantity of cones Demanded Price of Ice-cream Cone ($)

6 Demand curves show in graph format the data listed in demand schedules the rate of change for demand at each price Nature of Demand

7 Catherine’s Demand Curve Price of Ice- Cream Cone Quantity of Ice- Cream Cones $

8 When a product’s demand shifts, different quantities of a product are demanded at each and every price. Changes in Demand SECTION 2

9 Determinants of product demand shifts: consumer tastes and preferences market size income prices of related goods consumer expectations Changes in Demand SECTION 2

10 Price of Ice- Cream Cone Quantity of Ice-Cream Cones D3D3 D1D1 D2D2 Decrease in demand Increase in demand Shifts in the Demand Curve

11 Difference between substitute goods and complementary goods: substitute goods —used to replace the purchase of similar goods when prices increase Butter or Margarine complementary goods —commonly used with other goods DVDs and DVD Players Changes in Demand SECTION 2

12 Demand elasticity reflects the extent to which changes in a product’s price affect the quantity demanded by consumers. Elasticity of Demand SECTION 3

13 Difference between elastic and inelastic demand: elastic demand—when a small change in a product’s price results in a significant change in the quantity demanded inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded Elasticity of Demand SECTION 3

14 Demand elasticity is measured by using the total-revenue test. Elasticity of Demand SECTION 3

State the law of demand in your own words. Be sure to include how the income effect, the substitution effect, and diminishing marginal utility relate to the law of demand What causes movement along a demand curve—in other words, a change in the quantity demanded? How does this movement differ from a shift in demand? Wrap-Up CHAPTER 3

What is the difference between a complementary good and a substitute good? Give an example of each kind of good for each of these products: ice cream, baseball game tickets, pencils Why is determining demand elasticity important to business owners? How can business owners measure demand elasticity? Wrap-Up CHAPTER 3