Download demand S. 1

Chapter Objectives
Section 1: What Is Demand?
• Describe and illustrate the concept of
demand. 
• Explain how demand and utility are
related.
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Introduction
• Only those people with demand–the
desire, ability, and willingness to buy a
product–can compete with others who
have similar demands. 
• Demand is a microeconomic concept. 
• Microeconomics is the area of economics
that deals with behavior and decision
making by small units, such as individuals
and firms.
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Introduction (cont.)
• Collectively, these concepts of
microeconomics help explain how prices
are determined and how individual
economic decisions are made.
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An Introduction to Demand
• In a market economy people and firms
act in their own best interests to answer
the WHAT, HOW, and FOR WHOM
questions. 
• Knowledge of demand is important for
sound business planning.
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Demand Illustrated
• To illustrate how demand affects business
planning, imagine you are opening a
store. 
• Before you begin, you need to know where
the demand is.
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Demand Illustrated (cont.)
• How do you measure the demand for
your services? 
– You may visit other shops and gauge the
reactions of consumers to different prices. 
– You may poll consumers about prices and
determine demand from this data. 
– You could study data compiled over past years,
which would show consumer reactions to
higher and lower prices. 
• All of these methods would give you a
general idea as to the desire, willingness,
and ability of people to pay.
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The Individual Demand Schedule
4.1
• A demand schedule Figure
The Demand for Compact Discs
is a listing that
shows the various
quantities demanded
of a particular
product at all prices
that might prevail in
the market at a given
time.
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The Individual Demand Curve
• The information found in a demand
schedule can also be shown graphically
as a downward-sloping line on a graph. 
• Transfer the price-quantity observations
in the demand schedule to the graph, and
then connect the points to form the curve.
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The Individual Demand Curve (cont.)
• Economists call this
the demand curve,
a graph showing
the quantity
demanded at each
and every price that
might prevail in the
market.
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Figure 4.1
The Demand for Compact Discs
The Law of Demand
• The Law of Demand states that the
quantity demanded of a good or service
varies inversely with its price. 
– When the price goes up, quantity demanded
goes down. 
– When the price goes down, quantity demanded
goes up.
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Foundations for the Law of Demand
• Price is an obstacle which discourages
consumers from buying. 
• The higher this obstacle, the less of a
product they will buy; the lower the
obstacle, the more they will buy. 
• Common sense and simple observation
are consistent with the Law of Demand.
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The Market Demand Curve
• A market demand curve shows the
quantities demanded by everyone who is
interested in purchasing the product. 
• To get the market demand curve we add
together the number of items that everyone
would purchase at every possible price,
and then plot them on a separate graph. 
• The only real difference between the
individual demand curve and the market
demand curve is that the market demand
curve shows the demand for everyone that
is interested in buying the product.
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Figure 4.2
Individual and Market Demand Curves