Understanding Demand. Resource Market The Circular Flow Diagram Product Market HouseholdsFirms For Instance, Compact Discs -- Households Want To Buy (Demand)

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Presentation transcript:

Understanding Demand

Resource Market The Circular Flow Diagram Product Market HouseholdsFirms For Instance, Compact Discs -- Households Want To Buy (Demand) Them and Firms Want to Sell (Supply)Them. To Produce Compact Discs -- Firms Want To Buy (Demand) Labor and Households Want to Sell (Supply) it. Demand Supply Shows the relationship between what people want to buy and what firms are willing to sell

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

Law of Demand Law of Demand - the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus.

Ceteris Paribus Latin for “All other things held constant” The demand schedule is only taking into account the changes in price. It does not take into effect any advertising or the hundreds of other factors that could account for a change in demand.

Demand Schedule and Curve A table or diagram showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus.

Demand Schedule

Demand Curve P($) Q d per month A B C D

Market Demand Schedule/Curve A table or diagram showing the relationship between the price of a good and the total quantity demanded by all consumers.

Market Demand Schedule