Introduction to Demand

Components of Demand Demand Price and Quantity Quantity Demanded Law of Demand Determinants of Demand

Demand Demand is on overall indication of a consumers (buyers/purchasers) desire and ability to purchase a given good or service. This means that if you DO NOT have BOTH a desire and ability to purchase a good or service, you DO NOT HAVE DEMAND FOR THAT THING (You’re not “in the market”) Demand is not SPECIFIC!!! Demand itself does NOT change due to a change in PRICE OR QUANTITY of the good or service Demand is expressed by a line on a graph (Demand Curve) Demand is from the consumers (buyers/purchasers) perspective

Price and Quantity Specific PRICES are marked along the vertical axis. Specific QUANTITIES are marked along the horizontal axis. The intersection of PRICE and QUANTITY creates a specific QUANTITY DEMANDED Any time there is a change in price or quantity, there will be a corresponding change in quantity demanded, and thus, if quantity demanded has changed, there must have been a change in either price or quantity.

Quantity Demanded Quantity Demanded is a specific quantity of goods and services demanded at a specific price Quantity Demanded changes in response to changes in price There is an inverse relationship between the two (Law of Demand) Quantity Demanded moves along the demand curve (each point represents QD, or a specific quantity demanded at a specific price) Calculated using a Demand Schedule (Table)

The Law of Demand Ceteris Paribus = “All things held constant” Law of Demand = All things held constant (ceteris paribus), as PRICE (P) increases, QUANTITY DEMANDED (QD) will decrease (and vice versa) For demand, price and quantity have an inverse relationship

The Demand Curve The DEMAND CURVE is a function that shows the inverse relationship between price and quantity (Law of Demand) The demand curve ALWAYS SLOPES DOWN (and to the right) The demand curve is basically a “best fit” line demonstrating this relationship (instead of plotting every specific price and quantity of a good or service sold in that market)

Determinants of Demand Determinants of Demand shift the ENTIRE demand curve left or right Determinants of Demand Income Taste and Preferences Substitute Goods Complimentary Goods # of buyers (Population/size of the market) Consumer Information Available Future Price Expectations