The Demand Curve AP Econ 8/25

Warm Up For each item, think about how many of each you would buy at the specific prices. Write this in your notebook. Song downloads: $2, $1.00, .50, .25, .10 Candy bars: $2, $1.50, $1, .50, .20 Jeans: $100, $50, $30, $20, $10

Markets Markets bring together buyers and sellers Buyers demand products/resources Sellers supply products/resources Focus on markets with large numbers of independently acting buyers and sellers of standardized products

Intro into Demand Demand: A schedule or curve that shows the various amounts of a product (resources) that consumers (businesses) are willing AND able to purchase at each of a series of prices during a specific period of time

Law of Demand The Law of Demand: Other things equal, as price falls, the quantity demanded rises, and as prices rises, the quantity demanded falls Negative or inverse relationship between price and quantity demanded ***AKA: We are more willing to buy more units at a lower price Why? Income effect – lower prices increases purchasing power Substitution effect – at a lower price, buyers have the incentive to substitute what is now a relatively less expensive product

Individual Demand Schedule Price Quantity Demanded $30 $25 $20 1 $15 3 $10 5 $5 8

Individual Demand Curve Plot demand schedule onto graph A. X-axis is ALWAYS quantity B. Y-axis is ALWAYS price C. Demand curve practice: plot one demand schedule from your warm- up onto a set of axes.

The Market Demand Schedule Definition: shows quantities demanded by EVERYONE Find 2 or 3 partners in your area and choose one warm up example to form a market demand schedule. Each partner must write in their notebook. Ex:

Market Demand Curve

Demand and marginal utility Marginal utility: the extra satisfaction we get from using one more unit of a product Diminishing marginal utility: that extra satisfaction diminishes as we use more units 1. Example: candy bars Aren’t willing to pay as much for the 2nd, 3rd, 4th ones. ***Explains why demand curve is downward sloping

Factors Affecting Quantity Demanded A change in demand is a shift of the demand curve to the right or left A change in the quantity demanded is a movement along the demand curve Demand schedule remains fixed Movement along the demand curve ex. Price drops from 20 to 15  change in quantity demand from 23 to 30

Change in Demand Causes a shift in entire demand curve. People willing to buy different amounts at the same prices before.

Determinants of Demand AKA Demand Shifters Consumer income: What happens to demand when income is increased? Consumer tastes/preferences: Example 1: trends, Example 2: VCRs Changes in the prices of related goods Ex: Substitutes and Complements Change in expectation: Example: future shortages/sales Number of consumers: Increase in # of consumers  shift in market demand curve

Types of Goods Normal Good – demand for product varies directly with changes in income ex. Jewlery, new cars, name brand clothing Inferior Good – demand for product varies inversely with changes in income ex. Ramen noodles, used clothes, used cars Substitute Good – similar goods. If the price of good A rises, the demand for substitute good B rises. Ex. Butter and margarine Complements – goods that are used together. If the price of good A rises, the demand for complement good B falls ex. Peanut butter and jelly

Demand Shift Practice Product: SUVs. Scenario: Because of world shortages, the price of oil has sharply increased. Product: TVs (considered a normal good). Scenario: People are earning more money this year than last. Product: Coffee in the US. Scenario: Immigration into the US continues to increase. Product: LA Lakers season tickets. Scenario: The LA Clippers (the other basketball team in LA) have raised the price of their season tickets.