1. 21.1 Demand and 21.2 Factors Affecting Demand

2. An Introduction to Demand
Demand is the desire, willingness, and ability to buy a good or service; consumers must want the good, be willing to pay, and have the resources to buy it
A demand schedule is a table that lists quantities of a product or service someone is willing to buy over a range of prices

3. An Introduction to Demand
A demand curve is a graph that shows the amount of a product that would be bought at all possible prices
Prices are on the vertical axis and quantity is shown on the horizontal axis; each point on the curve shows units sold at each price

4. An Introduction to Demand
Demand curves usually slope downward because people normally buy less of a product if the price is high and more if the price is low
According to the law of demand, quantity demanded and price move in opposite directions

5. Market Demand
Companies are interested in market demand- the total demand of all consumers for their product or service, not individual demand
Utility is the pleasure, usefulness, or satisfaction we get from using a product; satisfaction usually changes as we consume more of a product
Ex: The first piece of pizza is AMAZING, the tenth piece is just okay.

6. Market Demand
Marginal utility is the additional satisfaction or use that is derived from each new unit acquired
Diminishing marginal utility is the principle that our additional satisfaction, or marginal utility tends to go down as more units are consumed

7. Market Demand
If extra benefits (marginal utility) gained are greater than the marginal costs (money paid) we make the purchase; otherwise we keep our money
When the demand curve slopes downward it tells us we would be willing to pay the highest price for the first unit we consume, a slightly lower price for the next, an even lower price for the third, and so on

8. Changes in Demand
When demand goes down people are willing to buy fewer items at all possible prices; in this case demand shifts to the left LOWERS
When demand goes up, people are willing to buy more of the same item at any given price; this pushes the demand curve to the right RAISES

9. What determines demand?
Changes in Demand
What determines demand?
Changes in Population= demand is related to the number of consumers in an area, more people means higher demand
Changes in Income= demand changes when consumers’ incomes change; when people have more money they usually spend more
Changes in Tastes= changing tastes and popularity of a product can affect demand
Changes in Expectations= refers to the way people think about the future; they can force demand higher or lower

10. Changes in Demand
Demand is also affected by the prices of related goods; there are two types of related goods substitutes and complements
Substitutes are items consumers can use in place of one another; a change in price of one causes demand for the other to move in the same direction
Coffee and Tea are SUBSTITUTES; if the price of coffee goes UP, demand for tea goes UP

11. Changes in Demand
Complements are products that can be used together; the demand for one moves in the opposite direction as the price of the other
The only factor that can directly cause a change in the quantity of a good is a change in its price; if the price of coffee goes up demand will fall
Computers and Software are COMPLEMENTS; if the price for computers goes UP, demand for software goes DOWN

12. Elasticity of Demand
The law of demand states that price and quantity demanded move in opposite directions; if price goes up demand goes down
Demand elasticity is the extent to which a change in price causes a change in quantity demanded
Price goes UP
Demand goes DOWN
Price goes DOWN
Demand goes UP

13. Elasticity of Demand
If demand is elastic it means a change in price causes a large percentage of change in quantity demanded; demand can be elastic if there are attractive substitutes, if the item is expensive, or the purchase can be postponed
If demand is inelastic it means a change in price has little effect on the quantity demanded; demand can be inelastic if there are few or no substitutes

14. Elasticity of Demand
Demand for medicine and food is inelastic because these are necessities which are goods needed in order to survive; demand for luxuries is elastic because buyers are more able to cut back on quantity demanded