1. Demand
Chapter 4

2. Price changes always affect the quantity demanded because people buy less of a good when its price is up

3. Demand The desire to own something and the ability to pay for it.
Both of these conditions must be present

4. Law of demand
When a good’s price is lower, consumers will buy more of it
When a good’s price is higher, consumers will buy less of it
All of us act out this law in our everyday lives, the price of a good will influences what and how much you buy

5. Would you buy a slice of pizza at lunch if it cost $2?
Would you buy the same slice of pizza if it were $4?
What about $10?
As the price of pizza gets higher, the fewer of us are willing to buy it

6. Law of demand is the result of two behaviors
Together they explain why an increase in price decreases the amount purchased
Substitution effect
Income effect

7. Substitution effect
Takes place when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good

8. Income effect Rising prices make us feel poorer
The change in consumption that results when a price increase causes real income to decline

9. Demand Demand means that you want the good and can afford to buy it
If you cannot truly afford to buy it, then you do not demand it

10. Demand schedule
Table that lists the quantity of a good that a person will purchase at various prices in a market
Individual Demand Schedule
Market Demand Schedule
Price of a slice of pizza
Quantity Demanded
$1.00 5
300
$2.00 4
250
$3.00 3
200
$4.00 2
150
$5.00 1
100
$6.00 50

11. Market demand schedule
Show the quantities demanded at various prices by all consumers in the market

12. Demand curve

13. Shifts in the demand curve
Sometimes increases or decreases in demand are not connected to price
There are thousands of other factors that change from day to day

14. What causes Changes in the demand curve
Income
Consumer expectations
Population
Demographics
Consumer tastes
advertising

15. Elasticity of Demand
Are there some products that you would continue to buy, even if the price were to rise dramatically?
Are there some products that you would cut back on or stop buying if the price slightly increased?

16. Elasticity of demand
A measure of how consumers respond to price changes

17. inelastic
Demand is not very sensitive to price changes

18. Elastic
Demand is very sensitive to a change in price

19. Factors affecting elasticity
Availability of substitutes
Relative importance
Necessities v luxuries
Change over time