1. Demand

2. Demand Schedule P QD Oranges $4/lb. .5 million $3/lb. 1million $2/lb.

3. Law of Demand

4. Law of Demand
As P , QD (As P , QD )

5. Law of Demand As P , QD (As P , QD )
There is an inverse relationship between P and QD

6. Law of Demand As P , QD (As P , QD )
There is an inverse relationship between P and QD
NOT As P , D

7. Law of Demand As P , QD (As P , QD )
There is an inverse relationship between P and QD
NOT As P , D
NOT As QD , P

8. Law of Demand As P , QD (As P , QD )
There is an inverse relationship between P and QD
NOT As P , D
NOT As QD , P
NOT As D , S

9. Demand Curve P $4 $3 $2 D QD
.5m m m
Oranges

10. Demand Curve P P2 QD P1 D QD Q2 Q1
Oranges

11. Shape and Slope of a Demand Curve
Negative (slopes downward from l-r)
Why?
Law of Demand
(inverse relationship between P and Q)
Why true?
Income Effect
Substitution Effect

12. Shape and Slope of a Demand Curve
Curved (not a straight line)
Why?
Law of Diminishing Marginal Utility
(the ice cream effect)

13. A change in price can only cause a change in quantity demanded, not a change in demand.
A change in quantity demanded is a movement along the demand curve.
Each point on the curve represents the quantity demanded at a particular price.

14. Changes in Demand
Demand is all the possible quantities consumers are willing and able to buy at various prices.
Therefore, a change in demand is a shift in the whole curve.
An increase in demand is a shift to the right.
A decrease in demand is a shift to the left.

15. People are now willing and able to buy more at all prices.
Increase in Demand P
People are now willing and able to buy more at all prices. P2 D1 P1 D QD Q2 Q3 Q1
Oranges

16. Determinants of Demand (causes a change in demand)
Consumer Tastes / Preferences
(advertising industry)
Income
normal goods
inferior goods
Change in the price of a related good
Substitutes

17. Papples QDapples Doranges QDoranges
Substitutes P P D P2 QD P1 P1 D1 D D Q Q1 Q2 Q Q2 Q1
Oranges
Apples
Papples QDapples Doranges QDoranges

18. Determinants of Demand (causes a change in demand)
Consumer Tastes / Preferences
(advertising industry)
Income
normal goods
inferior goods
Change in the price of a related good
Substitutes
Complements

19. PPB QDPB DJelly QDJelly
Complements P P D P2 QD P1 P1 D D D1 Q Q2 Q1 Q Q2 Q1
Jelly
Peanut Butter
PPB QDPB DJelly QDJelly

20. Determinants of Demand (causes a change in demand)
Consumer Tastes / Preferences
(advertising industry)
Income
normal goods
inferior goods
Change in the price of a related good
Substitutes
Complements
Future Price Expectations
Number of Consumers

21. Price Elasticity of DemandQ Q
Gas
Movies

22. Price Elasticity of Demand
Measures how responsive quantity demanded is to a change in price
Gas is inelastic (not very responsive)
Movies are elastic (very responsive)
Determinants of Elasticity
Necessity or Luxury?
Number of Substitutes?
Portion of Budget?

23. Total Revenue Test Total Revenue (TR) = P x Q
If P, and TR, then D is inelastic
If P, and TR, then D is elastic
If P, and n/c TR, then D is unit elastic

24. Total Revenue Test Movie Prices Ticket Price Tickets Sold
$ x = $600
$ x = $640 (inelastic)
$ x = $400 (elastic)
$ x = $600 (unit elastic)