1. Economics Unit 4, Lesson 1
What is Demand?
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2. Objectives Know the definition of demand.
Explain the three conditions for demand.
Describe and construct a demand schedule.
Construct a demand curve.
Explain the law of demand.
List and explain the three concepts that explain the law of demand.
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3. DEMAND – Definition
Amount of goods and services a consumer is willing and able to buy at various prices in a given time period
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4. Conditions for Demand
In this definition, we see there are three conditions for demand. 1. Willingness or desire 2. Ability – Financial means 3. Given time period
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5. Are you willing to buy
a Maserati?
Do you want one?
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6. We mean financial ability.
Are you able to buy
a Maserati?
We mean financial ability.
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7. Specific Time Period
Will you buy a Maserati this year?
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8. All buyers generally behave the same way,
so we can make some generalities.
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9. OR When price increases . . . When price decreases . . .
quantity demanded decreases. OR
When price decreases . . .
quantity demanded increases.
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10. This is called the law of demand!!!
It shows the inverse relationship between price & quantity demanded.
P↑ QD↓
P↓ QD↑
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11. Demand Schedule
Demand schedule – shows quantity demanded at various prices for one consumer
Market Demand schedule – shows quantity demanded by all consumers in the market
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12. Demand Schedule Price Quantity 0.50 1.00 1.50 2.00 2.50 300 250 200
150
100
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13. Demand Curve
You see a demand curve slopes downward, from left to right, showing the inverse relationship between price and quantity demanded.
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14. P
.50
300 Q
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15. P
2.50
2.00
1.50
1.00 D
.50
100
150
200
250
300 Q
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16. Limitations of Demand Curve
The demand curve is only accurate for one set of conditions. It only shows changes in price. If anything other than price changes then the demand curve will no longer be valid.
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17. Concepts That Explain the Law of Demand
(why the demand curve slopes downward)
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18. 1. The Income Effect
The price of an item goes up or down, and it is as if your income has changed; causing the quantity demanded to change.
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19. 2. Substitution Effect
If the price of an item changes, especially if it goes up, a consumer will substitute another item that is cheaper.
This causes the
quantity
demanded to
change.
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20. 3. Diminishing Marginal Utility
As each additional unit of a good or service is consumed, the satisfaction received from consuming that good decreases. For example, the first hamburger you eat is great but the second is not as satisfying, so you would not be willing to pay as much for it. The third brings even less satisfaction.
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