1. Demand

2. Demand
Demand is:
The quantity of goods a consumer is willing and able to purchase at various prices

3. Demand: Able To have demand, you must be ABLE to purchase it
You may want a palace, but you don’t have demand for it since you are not ABLE to buy it.

4. If you don’t want to buy it, you don’t have demand.
Demand: Willing
To have demand, you must be willing to purchase it
If you don’t want to buy it, you don’t have demand.

5. The Law of Demand
When the price increases, the quantity demanded decreases.
When the price decreases, the quantity demanded increases.

6. Law of Demand
Inverse relationship between price & quantity demanded
P Qd
P Qd

7. Demand Graph
Price
Quantity D

8. Demand - Down
Price
Quantity D
The demand curve is downward sloping

9. Why is Demand Downward Sloping?
Income Effect
Substitution Effect
Law of Diminishing Marginal Utility

10. Income Effect
When prices rise, a consumer is less ABLE to purchase something.
P Qd
P Qd
The opposite is true.

11. Substitution Effect
If there’s a substitute for a good, you will be less willing and able to buy the good if the substitute is cheaper.
If Coca-Cola becomes more expensive, you’ll buy less of it since you can substitute Pepsi for it.

12. Complementary Goods
Complementary good: a product that is used or consumed jointly with another product. Such a good usually has more value when paired with its complement than when used separately. IN OTHER WORDS... An object that is paired with another item; they are usually purchased together rather than separately. 

13. Marginal Utility Utility = usefulness Marginal Utility
The usefulness of one additional unit
The satisfaction we get from consuming an additional unit of a product

14. Law of Diminishing Marginal Utility
Satisfaction decreases as consumption of a particular good increases
Goods lose usefulness each time you consume/purchase another

15. Demand Schedule
Price
Quantity Demanded $2 $4 $6 $8
$10 5 4 3 2 1

16. At $8, the quantity demanded is 2
Demand Graph
Price
Quantity D
$10 $8 $6 $4 $2 1 2 3 4 5 A
Point A:
At $8, the quantity demanded is 2

17. Demand: Price Changes Point B:
Quantity D
$10 $8 $6 $4 $2 1 2 3 4 5 A B
Point B:
When the price is lowered to $6, the quantity demanded increases to 3
A price change means there is movement along the demand curve

18. Review Questions What is demand? What is the Law of Demand?
What three things cause demand to have a downward slope?
What is the Law of Diminishing Marginal Utility?
What is the income effect?
What is the substitution effect?
On a graph, how do we show a change in quantity demanded due to a change in price?

19. Changes in Quantity Demanded
1) The price of a latte at Starbucks is raised from $4 to $8. Will that cause an increase or decrease in the quantity demanded? Why?
2) Movie tickets at Edwards Cinema were $11 last week. Today, they lowered the price of a ticket to $ Will that cause an increase or decrease in quantity demanded? Why?