1. Demand CHAPTER 3 SECTION 1: Nature of Demand
Holt Economics
4/20/2017
CHAPTER 3
Demand
SECTION 1: Nature of Demand
SECTION 2: Changes in Demand
SECTION 3: Elasticity of Demand
Chapter 3

2. Objectives: Nature of Demand SECTION 1
How does demand differ from the quantity demanded?
What does the law of demand state?
What do demand schedules and demand curves illustrate?

3. Difference between demand and the quantity demanded:
SECTION 1
Nature of Demand
Difference between demand and the quantity demanded:
demand—amount of a good or service that a consumer is willing and able to buy at various prices during a given period of time.
quantity demanded—amount of good or service that a consumer is willing and able to buy at each particular price during a given period of time.
Notice, that in both definitions- you must be willing and able to buy.

4. P Qd Law of demand: Nature of Demand SECTION 1
As Price goes up, Quantity Demanded goes down. P Qd

5. Income Effect Change in purchasing power because of a change in price
1 chocolate bar-$1.00
On sale for $.50

6. Substitution Effect
Substitute a similar lower priced product for one that is more expensive.
Hershey bars cost $7.00 a piece. What are you going to do?
If Nestle chocolate bars were free, would you demand 1,000,000,000 of them?

7. Diminishing Marginal Utility
As more units of a product are consumed, the satisfaction received from each additional unit declines.
This is why demand for a product is not limitless.

8. What demand schedules illustrate:
SECTION 1
Nature of Demand
What demand schedules illustrate:
Demand schedules show in table format:
the quantity of products consumers are willing and able to buy at a series of possible prices
Price
Quantity Demanded
1.00
14000
2.00
9000
3.00
3000

9. What demand curves illustrate:
Demand curves show in graph format the data listed in demand schedules

10. Creating Demand Charts
Draw the appropriate Demand Curve for each Demand Schedule.
At which price does the seller receive the highest Total Revenue?

11. 1. Draw the appropriate Demand Curve. for each Demand Schedule. 2
1. Draw the appropriate Demand Curve for each Demand Schedule At which price does the seller receive the highest Total Revenue? #1
Demand for gasoline in one week period.
Quantity in gallons
Price Q-Demanded
gal
gal
gal
gal
gal
gal

12. 4.00
3.90
3.80
3.75 Pr
ice D1
5, , , , , ,000
Quantity

13. Demand for Pepsi sold at Quick Stop in one day. #2
Demand for Pepsi sold at Quick Stop
in one day.
Quantity in cups of Pepsi.
Price Q-Demanded

14. 1.75
1.65
1.55 Pr
ice D1
Quantity

15. #3
Demand for music CDs sold in one year.
Price Q-Demanded $ $ $ $ $ $

16. 25.00
10.00 Pr
ice D1
10, ,000
Quantity

17. #4
Demand for flip-flops at the local
Target store in June.
Price Q-Demanded $ $ $ $ $ $

18. 15.00
5.00 Pr
ice D1
,000
Quantity

19. P Qd This is the law of demand
Shown as movement along the Demand Curve.
This is caused only by change in price.

20. What a Change in Qd Looks Like:
3.00
2.00
1.00 Pr
ice
Quantity

21. SECTION 2
Changes in Demand
When a product’s demand shifts, different quantities of a product are demanded at each and every price.

22. Pr
ice D2 D1
Quantity

23. Determinants of product demand shifts:
SECTION 2
Changes in Demand
Determinants of product demand shifts:
consumer tastes and preferences
market size
income
consumer expectations
prices of related goods
Substitute
Complementary

24. Difference between substitute goods and complementary goods:
SECTION 2
Changes in Demand
Difference between substitute goods and complementary goods:
substitute goods—used to replace the purchase of similar goods when prices increase
complementary goods—commonly used with other goods

25. Headlines: For each Headline:
Determine what direction the demand curve will move.
Determine which determinant of demand is making the curve to move.
Draw the graph.

26. Product: Hot Dogs
Price of Hot Dog Buns Sky Rocket because Wheat Producers go on strike!!!!
Direction? _____________
Determinant? _____________
Draw Graph:
To the Left
Prices of Related Goods- Complementary

27. Pr
ice D1 D2
Quantity

28. Product: Hershey Chocolate
Hershey Bars: Part of a Healthy Diet!
Shift?________
Det._________
Graph:

29. Product: Apple iPod
Amid Strong Sales Apple Doubles Prices of all iPods.

30. Product: Wal-Mart Stock
Wal-Mart Expected to have Best 4th Quarter Earnings in 10 Years.
Shift?________
Det._________
Graph:

31. Product: Televisions
Study Shows U.S. Citizens Making 75% More Than 10 Years Ago.

32. Product: Come up with your own
Headline: Come up with your own.
Trade with the person in-front of/behind you.

33. Objectives: Elasticity of Demand SECTION 3 What is demand elasticity?
What is the difference between elastic and inelastic demand?
How is demand elasticity measured?

34. SECTION 3
Elasticity of Demand
Demand elasticity reflects the extent to which changes in a product’s price affect the quantity demanded by consumers.

35. Difference between elastic and inelastic demand:
SECTION 3
Elasticity of Demand
Difference between elastic and inelastic demand:
elastic demand—when a small change in a product’s price results in a significant change in the quantity demanded

36. Elastic Demand Curve Pr ice Quantity Small change in Price
Large change in Qd
Quantity

37. Difference between elastic and inelastic demand:
inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded

38. Inelastic Demand CurveP1
Big Change in Price P2 Q1 Q2
Small Change in Qd

39. Demand elasticity is measured by using the total-revenue test.
SECTION 3
Elasticity of Demand
Demand elasticity is measured by using the total-revenue test.

40. CHAPTER 3
Wrap-Up
1. State the law of demand in your own words. Be sure to include how the income effect, the substitution effect, and diminishing marginal utility relate to the law of demand.
2. What causes movement along a demand curve—in other words, a change in the quantity demanded? How does this movement differ from a shift in demand?

41. CHAPTER 3
Wrap-Up
3. What is the difference between a complementary good and a substitute good? Give an example of each kind of good for each of these products: ice cream, baseball game tickets, pencils.
4. Why is determining demand elasticity important to business owners? How can business owners measure demand elasticity?