The Nature of Demand 3.1 Demand—The amount of a good or service that that a consumer is willing and able to buy at various possible prices during a given period of time. Quantity Demanded—Amount consumer is willing and able to buy at each particular price during given time period.

3.1 Demand Demand: 2 Important Conditions Consumer must be willing to buy Consumer must be able to buy *Not only be willing to buy a good or service but be able to pay for it. *Conditions change—Time can change the demand for a good or service.

The Law of Demand 3.1 An increase in a goods price causes a decrease in the quantity demanded and that a decrease in price causes an increase in the quantity demanded. Price – Up Demand –Down Price –Down Demand--Up Ex. $200 MP3 Player Price increases to $300 Price decreases to $100

Economic Concepts 3.1 Purchasing Power—The amount of money or income that is available to spend on goods and services. Income Effect—Any increase or decrease in consumers purchasing power caused by a change in price. We have $30 to spend on DVD’s: Ex. DVD’s prices increase from $15 to $18 Ex. DVD’s prices drop from $15 to $10 Consumers: Must be willing AND able

Income Effect 3.1 Substitution Effect—The tendency of consumers to substitute a similar, lower priced product for another product with a higher price. Hamburger rises to $5.00 per pound Substitute $3.00 p/pound The demand for hamburger decreases as price increases. Ex. Milk—no substitute; demand about the same.

Diminishing Marginal Utility 3.1 Utility=Usefulness of a product or the amount of satisfaction an individual receives from a product. Diminishing Marginal Utility—The more of a product that is consumed, the satisfaction from each additional unit declines. Marginal: Means one additional unit Ex. At some point consumers cannot use any more of a product.

Demand Schedules 3.1 Demand Schedule—A way to show the relationship between the price of a good and the quantity that consumers demand. The schedule shows the quantity of goods that consumers are willing and able to buy at a series of possible prices. Inverse relationship Price $Quantity

Demand Curve Demand Curve—A graph that plots all the possible combinations of prices and quantities demanded. P Q