1. Demand

2. What Is Demand? Demand – the desire, ability, and willingness to buy a product Microeconomics – the area of economics that deals with behavior and decision- making by small units, such as individuals and firms Collectively, concepts of microeconomics help explain how prices are determined and individual economic decisions are made

3. What Is Demand? In a market economy, people and firms act in their own best interests to answer our three questions of production: 1.What 2.How 3.For whom? Demand is necessary for both economists and businesses. The question is, how do consumers react to prices? At a low enough price, almost anything is attractive as a product Almost

4. Individual Demand Schedules Amount of a product that a given consumer would be willing and able to purchase over a range of possible prices If someone wants something, but is unable to afford it, that person’s desire does not translate to demand This is why, given a low enough price, people will even buy a copy of Paul Blart: Mall Cop

5. Individual Demand Curves Simply a way of showing the information from a demand schedule in a different way Demand Curve – graph showing quantity demanded at each and every price that might prevail in the market Law of Demand – quantity demanded of a good or service varies inversely with its price Price goes up – quantity goes down

6. Market Demand Curve Market Demand Curve – sum of the individual demand curves for a given product This is what most people think of when they think of a demand curve – it includes everyone, which is really what you would like to know as a business

7. Demand and Marginal Utility utility – the amount of usefulness or satisfaction that someone gets from the use of a product marginal utility – the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product diminishing marginal utility – the extra satisfaction we get from using additional quantities of the product begins to diminish Diminishing marginal utility is why our demand curve is downward-sloping

8. Factors Affecting Demand Change in quantity demanded – movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price The curve does not move – we are simply moving to a new point along the already existing curve The Income Effect – the change in quantity demanded because of a change in price that alters consumers’ real income The Substitution Effect – the change in quantity demanded because of the change in the relative price of a product

9. Change in Demand Change in demand – when the demand curve itself shifts This means that people are now willing to by different amounts of the product at the same prices Changes in demand can occur due to a number of reasons: Changes in demand can occur due to a number of reasons: Change in consumer income Change in consumer income Change in consumer taste Change in consumer taste Change in the price of related products (also known as substitutes) Change in the price of related products (also known as substitutes) Complements – use of one increases the use of others (think computers and software) Complements – use of one increases the use of others (think computers and software) Change in expectations Change in expectations Change in the number of consumers Change in the number of consumers