1. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 1 Market Demand The Law of Demand 3-1 Shifts in the Demand Curve 3-2 Elasticity of Demand 3-3

2. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 2 L earning O bjectives 3-1 The Law of Demand Explain the law of demand and how a demand schedule is represented in a demand curve. LO1-1 Understand the difference between an individual and a market demand curve. LO1-2

3. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 3 Vocabulary 3-1 The Law of Demand The Demand Curve demand quantity demanded law of demand demand schedule demand curve Market Demand individual demand curve market demand curve

4. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 4 The Demand Curve Demand is the relationship between the price and quantity demanded for a good or service, then there variables are held constant. In a market, demand is the buying side. Demand is based on the assumption that other variables remain constant or unchanged. 3-1 The Law of Demand Quantity demanded is the amount of goods and services purchased at a given price.

5. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 5 The Demand Curve The law of demand states there is an inverse relationship between the price of a good or service and the quantity buyers purchase. 3-1 The Law of Demand

6. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 6 The Demand Curve A demand schedule is formed by the line connecting points that represent possible combinations of price and quantity purchased by consumers. 3-1 The Law of Demand PointPrice per DVDQuantity Demanded per Year A$204 B158 C1012 D516

7. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 7 The Demand Curve A demand curve is a table that lists the quantity of a good or service consumers purchase at various possible prices. 3-1 The Law of Demand By moving along the curve, you can find the quantity demanded by a buyer at any possible selling price.

8. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 8 Market Demand 3-1 The Law of Demand An individual demand curve is the demand for a single consumer. A market demand curve is the sum of all individual demand curves in a market.

9. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 9 L earning O bjectives 3-2 Shifts in the Demand Curve Explain the difference between change in quantity demanded and change in demand. LO 2-1 Identify demand shifter variables that cause changes in demand. LO 2-2

10. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 10 Vocabulary 3-2 Shifts in the Demand Curve Difference in Change in Quantity Demanded and Change in Demand change in quantity demanded change in demand Demand Shifter Factors normal good inferior good substitute complement

11. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 11 Difference in Quantity Demanded and Change in Demand A change in quantity demanded is a movement between points along a demand curve, based on the assumption all other demand shifter factors remain constant. 3-2 Shifts in the Demand Curve

12. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 12 Difference in Quantity Demanded and Change in Demand 3-2 Shifts in the Demand Curve A change in demand is an increase (rightward shift) or a decrease (leftward shift) in the demand curve. This increase means that at all possible prices consumers are buying more than before the shift.

13. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 13 Difference in Quantity Demanded and Change in Demand 3-2 Shifts in the Demand Curve A change in demand is an increase (rightward shift) or a decrease (leftward shift) in the demand curve. This decrease means that at all possible prices consumers are buying less than before the shift.

14. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 14 Demand Shifter Factors 3-2 Shifts in the Demand Curve A normal good is any good for which there is a direct relationship between change in income and its demand curve. An inferior good is any good for which there is a inverse relationship between change in income and its demand curve.

15. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 15 Demand Shifter Factors 3-2 Shifts in the Demand Curve Substitutes are goods that compete for consumer purchases. Complements are goods that consumers purchase together with another good.

16. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 16 L earning O bjectives 3-3 Elasticity of Demand Understand the difference between elastic, inelastic, and unitary elastic demand. LO 3-1 Explain how total revenue is related to price elasticity of demand. LO 3-2

17. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 17 Vocabulary 3-3 Why Elasticity of Demand Matters total revenue elasticity of demand elastic demand inelastic demand unitary elastic demand Total Revenue Test Elasticity of Demand

18. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 18 Why Elasticity of Demand Matters Total revenue is the total dollars a firm receives from the sale of a good or service. It is equal to the price multiplied by the quantity demanded. You need to measure the relative size of changes in the price and the quantity demanded. You must calculate and compare the percentage change in quantity demanded that is caused by a percentage change in price. 3-3 Elasticity of Demand

19. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 19 Why Elasticity of Demand Matters Elasticity of demand is the ratio of the percentage change in the quantity demanded of a product to a percentage change in its price. These formulas are used to measure the degree of elasticity of demand. 3-3 Elasticity of Demand

20. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 20 Why Elasticity of Demand Matters Elastic demand - 3-3 Elasticity of Demand Inelastic demand - Unitary elastic demand -

21. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 3 21 Total Revenue Test Business need to know about elasticity of demand because it determines the size of total revenue or sales. Knowledge of the elasticity of demand helps a business make pricing decisions that result in the greatest total revenue. 3-3 Elasticity of Demand