1. Section 1: Understanding Demand
Chapter 4: Demand
Section 1:
Understanding Demand

2. $ D D $ Understanding Demand Definition The Law of Demand
The DESIRE to own something and
The ABILITY to pay for it
The Law of Demand
As prices for an item rise,
the demand for that item drops
As prices for an item drop,
the demand for that item rises $ D D $

3. Effects on demand The Substitution Effect
Finding a different product to substitute for your favorite product
As the price of your favorite good rises, the purchasing of that good (demand) falls
As the price of your favorite good rises, the amount of purchases (demand) of a decent alternative also rises
If the price of your favorite good drops, you go back to buying more of your favorite and less of the alternate

4. Effects on demand The Income Effect If your income drops and
prices remain the same,
demand will drop
If your income rises and
demand will rise

5. Effects on demand The Income Effect If your income stays the
same while prices rise,
demand will fall
same while prices fall,
demand will rise
INFLATION

6. Effects on demand Remember: Economists measure consumption by the
AMOUNT of goods BOUGHT/CONSUMED;
NOT by the amount of MONEY SPENT on goods

7. The demand schedule It looks like a It lists Chart Table
Specific AMOUNT of
goods which will be
purchased
at VARIOUS prices

8. The demand schedule Individual demand schedule Market demand schedule
The quantity of a good
that a single person will
purchase at various prices
Market demand schedule
that the population (market)
will purchase at various
prices.

9. The demand curve It looks like a graph The information comes
from a demand schedule

10. The demand curve The axes Vertical Horizontal Prices
Lowest at the bottom
Highest at the top
Horizontal
Quantities of goods
demanded
Lowest at left
Highest at right

11. The demand curve The slope Always DROPS from left to right
Visually shows
the Law of
Demand

12. Limitations of the demand curve
It assumes that all other factors are not changing
It is only accurate for
One specific good
At one specific time
It cannot predict the future