CH 4: DEMAND 4-1: WHAT IS...
Transcript of CH 4: DEMAND 4-1: WHAT IS...
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CH 4: DEMAND
4-1: WHAT IS DEMAND?
Notes
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LEARNING TARGETS
• I will demonstrate an understanding of the law of
demand, and demand vs. quantity demanded.
• I will demonstrate an understanding of the factors
that shift demand.
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WHAT IS DEMAND?
• Demand is the willingness to buy a good or
service and the ability to pay for it
• Must have both elements for demand to exist
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LAW OF DEMAND
• The law of demand states that when price
decreases, quantity demanded increases and that
when price increases, quantity demanded
decreases
• There is an inverse relationship
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DEMAND SCHEDULE
• A demand schedule is a table (or listing) of how
much of an item an individual is willing to purchase
at each price
Price Quantity Demanded
$1 50
$2 40
$3 30
$4 20
![Page 6: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/6.jpg)
DEMAND CURVE
• Demand curve (D): graphically shows the data
from a demand schedule
Q
P
D
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INDIVIDUAL DEMAND SCHEDULE
• What can we learn from an individual demand
schedule?
• How much of an item one person is willing and
able to buy at a specific price
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INDIVIDUAL DEMAND SCHEDULE
Price (per DVD) Quantity Demanded
$5 7
$10 4
$15 3
$20 2
$25 1
$30 0
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INDIVIDUAL DEMAND CURVE
• According to the chart, I am not willing nor able
to buy any DVDs at $30
• But, I am willing and able to buy 7 DVDs if they
are $5 each
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INDIVIDUAL DEMAND SCHEDULE AND CURVE
• Use the data below to create an individual demand curve
for DVDs
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INDIVIDUAL DEMAND SCHEDULE AND CURVE
• Note: the vertical axis is always price (P) and the
horizontal axis is always quantity (Q) demanded
(of a particular product)
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DRAW YOUR INDIVIDUAL DEMAND CURVE
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MARKET DEMAND SCHEDULE
• A market demand schedule a listing of how much
of a good or service all consumers are willing to
purchase at each price
• Purpose: Business owners need a market
demand schedule in order to price a good to gain
the maximum number of sales
![Page 14: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/14.jpg)
MARKET DEMAND SCHEDULE
Price (per DVD) Quantity Demanded
$5 300
$10 175
$15 150
$20 125
$25 100
$30 50
![Page 15: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/15.jpg)
MARKET DEMAND SCHEDULE
• What can we learn from a market demand
schedule?
• At $30 quantity demanded is 50 DVDs
• At $5 quantity demanded is 300 DVDs
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DRAW A MARKET DEMAND CURVE
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4-2: WHAT FACTORS
AFFECT DEMAND?Notes
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LAW OF DIMINISHING MARGINAL UTILITY
• The marginal benefit of using each additional
unit of a product during a given period of time will
decline
• Why?
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HOW DOES THIS AFFECT THE
DEMAND CURVE?
• The demand curve slopes downward because an
individuals’ utility, or overall satisfaction,
decreases as they obtain more of a good or
service
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EXAMPLE OF THE LAW OF DIMINISHING
MARGINAL UTILITY
• On a hot day, the ice cream truck comes through
your neighborhood
• You will most likely receive the most satisfaction
from the first ice cream bar you purchase rather
than the second, third, or fourth
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WHY DO CONSUMERS DEMAND MORE GOODS
AND SERVICES AT LOWER PRICES AND
FEWER AT HIGHER PRICES?
• 2 reasons:
• 1. Income effect: the change in the amount that
consumers will buy because the purchasing
power of their income changes
• If you make more money you might consume
more expensive goods (and vice versa)
![Page 22: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/22.jpg)
• 2. Substitution effect: change in the amount that
consumers will buy because they buy substitute
goods instead
• A different cereal brand is on sale, so you
substitute that for the one you normally buy
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EXAMPLE
• Tara goes to the mall to buy a $50 pair of designer
jeans and discovers they are on sale for $35. If
Tara decides to buy 2 pairs, is this an example of
the income effect or the substitution effect?
• Answer: Income effect because the lower price of
the jeans increased the purchasing power of
Tara’s income
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DEMAND VS. QUANTITY DEMANDED
• Demand: the curve that represents the schedule of
quantities consumers are willing and able to buy at
each price
![Page 25: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/25.jpg)
• Quantity demanded tells us how much will be
bought at a specific price (a point on the
demand curve)
DEMAND VS. QUANTITY DEMANDED
![Page 26: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/26.jpg)
DEMAND VS. QUANTITY DEMANDED
• A change in price changes quantity demanded—
this refers to movement along the demand curve
• A change in anything other than price that affects
the demand curve changes the entire demand curve
—this causes a shift in demand
![Page 27: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/27.jpg)
GRAPHICALLY, WHAT DOES THIS MEAN?
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DEMAND SHIFT FACTORS
• 1. Income: as income increases/decreases it
affects a person’s ability to purchase goods and
services
• When consumer incomes increase, they demand
more normal goods
• Example: new car, TV, etc.
![Page 29: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/29.jpg)
DEMAND SHIFT FACTORS
• When consumer income increases, they demand
less inferior goods
• Examples: used books, off-brands
![Page 30: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/30.jpg)
DEMAND SHIFT FACTORS
• 2. Market size/population: if the number of
consumers increases or decreases it also affects the
market size
• Example: a significant increase in population in
the Southwest will increase demand for housing
• Example: A decrease in population in a city would
decrease demand for housing
![Page 31: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/31.jpg)
DEMAND SHIFT FACTORS
• 3. Consumer tastes/preferences: when a good/service is popular, consumers demand more of it at all prices
• When the product becomes less popular, consumers demand less of it
• Example: if turkey burgers become more popular because they are healthier, demand will increase
• Example: if skateboarding becomes less popular, demand will decrease
![Page 32: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/32.jpg)
DEMAND SHIFT FACTORS
• 4. Consumer expectation of price: future
expectations can affect today’s buying habits
• If consumers believe the price of a good will
increase in the future, they consume it now
• If consumers believe the price of the good will be
decrease in the future they will wait to consume it
![Page 33: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/33.jpg)
DEMAND SHIFT FACTORS
• Example: if you believe the price of a DVD will
increase in the future, you will buy it now—shifting
demand to the right (an increase in demand)
• Example: if you believe the price of shoes will
decreases in the future, you will buy them later—
shifting demand to the left (a decrease in demand)
![Page 34: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/34.jpg)
DEMAND SHIFT FACTORS
• 5. Substitute goods: goods and services that can be
used in place of each other
• If the price of a substitute good drops, people will
buy that good and not the original item
• Example: The price of Kroger brand cereal drops so
we consume that rather than the higher priced name
brand
![Page 35: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/35.jpg)
DEMAND SHIFT FACTORS
• 6. Complementary goods: goods that are used
together
• An increase in the demand for one good increases
the demand for the complementary good
• Example: an increase in the demand for hamburgers
increases the demand for ketchup
![Page 36: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/36.jpg)
WHAT DO THE GRAPHS
FOR DEMAND LOOK
LIKE?
![Page 37: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/37.jpg)
DRAWING THE GRAPH
AN INCREASE IN DEMANDP
Q
S1
D1
D2
Q1 Q2
P1
P2
![Page 38: CH 4: DEMAND 4-1: WHAT IS DEMAND?lopiccolo.weebly.com/uploads/7/7/7/4/7774746/ch_4-1_and_4-2_notes... · •Must have both elements for demand to exist. ... INDIVIDUAL DEMAND SCHEDULE](https://reader034.fdocuments.net/reader034/viewer/2022042620/5a7b53917f8b9a563b8bfa7d/html5/thumbnails/38.jpg)
DRAWING THE GRAPH
A DECREASE IN DEMANDP
Q
S1
D2
D1
Q2 Q1
P2
P1