Demand

Demand Demand is: The quantity of goods a consumer is willing and able to purchase at various prices

Demand: Able To have demand, you must be ABLE to purchase it You may want a palace, but you don’t have demand for it since you are not ABLE to buy it.

If you don’t want to buy it, you don’t have demand. Demand: Willing To have demand, you must be willing to purchase it If you don’t want to buy it, you don’t have demand.

The Law of Demand When the price increases, the quantity demanded decreases. When the price decreases, the quantity demanded increases.

Law of Demand Inverse relationship between price & quantity demanded P Qd P Qd

Demand Graph Price Quantity D

Demand - Down Price Quantity D The demand curve is downward sloping

Why is Demand Downward Sloping? Income Effect Substitution Effect Law of Diminishing Marginal Utility

Income Effect When prices rise, a consumer is less ABLE to purchase something. P Qd P Qd The opposite is true.

Substitution Effect If there’s a substitute for a good, you will be less willing and able to buy the good if the substitute is cheaper. If Coca-Cola becomes more expensive, you’ll buy less of it since you can substitute Pepsi for it.

Complementary Goods Complementary good: a product that is used or consumed jointly with another product. Such a good usually has more value when paired with its complement than when used separately. IN OTHER WORDS... An object that is paired with another item; they are usually purchased together rather than separately. 

Marginal Utility Utility = usefulness Marginal Utility The usefulness of one additional unit The satisfaction we get from consuming an additional unit of a product

Law of Diminishing Marginal Utility Satisfaction decreases as consumption of a particular good increases Goods lose usefulness each time you consume/purchase another

Demand Schedule Price Quantity Demanded $2 $4 $6 $8 $10 5 4 3 2 1

At $8, the quantity demanded is 2 Demand Graph Price Quantity D $10 $8 $6 $4 $2 1 2 3 4 5 A Point A: At $8, the quantity demanded is 2

Demand: Price Changes Point B: Quantity D $10 $8 $6 $4 $2 1 2 3 4 5 A B Point B: When the price is lowered to $6, the quantity demanded increases to 3 A price change means there is movement along the demand curve

Review Questions What is demand? What is the Law of Demand? What three things cause demand to have a downward slope? What is the Law of Diminishing Marginal Utility? What is the income effect? What is the substitution effect? On a graph, how do we show a change in quantity demanded due to a change in price?

Changes in Quantity Demanded 1) The price of a latte at Starbucks is raised from $4 to $8. Will that cause an increase or decrease in the quantity demanded? Why? 2) Movie tickets at Edwards Cinema were $11 last week. Today, they lowered the price of a ticket to $5.50. Will that cause an increase or decrease in quantity demanded? Why?