Unit 3: Microeconomics Lesson 1: Demand

Definitions Demand: the amount of a good or service that consumers are willing and able to buy at various prices during a period of time Quantity Demanded: the amount of a good or service that consumers are willing and able to buy at a particular price during a period of time

Definitions Law of Demand: an increase in the price of a good or service causes a decrease in the quantity demanded; vice-versa ● Price is the main variable that affects demand ● An inverse or negative relationship exists between price and quantity demanded

Definitions 4. Demand Schedule: a table that lists the quantity of a good or service that consumers are willing and able to buy at particular prices

Demand Schedule Price per pair of Shoes Quantity Demanded $60.00 1,500 $50.00 2,250 B $40.00 3,000 C $30.00 3,750 D $20.00 4,750 E

Definitions 5. Demand Curve: a graphic illustration of a demand schedule

Pairs of Shoes (Thousands) Demand Curve P 70 60 50 40 30 20 10 ● A ● B ● C $ ● D ● E D1 1 2 3 4 5 Pairs of Shoes (Thousands) Q

Shift in Demand Only price affects demand in a given period of time Factors other than price can affect demand and shift the curve over time ● Increase in demand = curve shifts right ● Decrease in demand = curve shifts left

Shifts in Demand Determinants (Reasons for Change) ● Consumer taste or preference ● Size of the market ● Income

Shifts in Demand Determinants (Reasons for Change) ● Price of complementary goods ● Price of substitute goods ● Consumer expectations

(Pairs of Shoes) Thousands Increase in Demand P 70 60 50 40 30 20 10 $ D1 D2 1 2 3 4 5 (Pairs of Shoes) Thousands Q

(Pairs of Shoes) Thousands Decrease in Demand P 70 60 50 40 30 20 10 $ D3 D1 1 2 3 4 5 (Pairs of Shoes) Thousands Q

Elasticity of Demand Demand Elasticity: the degree to which a change in the price of a good or service affects the quantity demanded

Elasticity of Demand Elastic Demand: a small change in the price of a good or service causes a major change in the quantity demanded ● Product is not a necessity ● Substitute goods are readily available ● Cost of product represents a large percentage of consumers’ income

Elastic Demand P 3.5 3.0 2.5 2.0 1.5 1.0 0.5 $ D1 10 20 30 40 50 Thousands Q

Elasticity of Demand Inelastic Demand: a change in the price of a good or service has little impact on the quantity demanded ● Product is a necessity ● Few, if any, substitute goods available ● Cost of product represents a small portion of consumers’ income

Inelastic Demand P 5.00 4.50 4.00 3.50 3.00 2.50 2.00 $ D1 10 20 30 40 50 Thousands Q