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DEMAND
What you need to know:
What is demand?
The definition is a “combination of quantities that
someone would be willing and able to buy over a
range of possible prices at a given moment”
What you write:
• Demand (D) is the desire, willingness, and ability to
buy a good or service
• Demand is on the consumer’s side
The Why?:
Because if you want
it, they will make it
What you need to know:
How is demand calculated?
The calculation of demand comes down to only two
variables: the price of a product and the quantity
available at a given point in time
What you write:
• Demand (D) = Price (P) and Quantity (Q)
KEY TERM:
ceteris paribus –
“other things held
constant”
What you need to know:
What is a demand schedule?
The definition is a “listing showing the quantity
demanded at all possible prices that might prevail in
the market at a given time”
What you write:
PRICE
$1
$20
$50
$100
$200
$500
QUANTITY DEMANDED
What you need to know:
What is a demand curve?
The definition is a “graph showing the quantity
demanded at each and every possible price that might
prevail in the market at a given time”
What you write:
Price (P)
$500
$200
Demand (D)
demand curve
slopes downward
$100
$50
$20
$1
Quantity Demanded (Q)
What you need to know:
What is the Law of Demand?
The definition is a “rule stating that more will be
demanded at lower prices and less at higher prices;
and inverse relationship between price and quantity
demanded”
What you write:
• People are normally willing to buy less of a product
at a high price and more at a low price
• Law of Demand = inverse relationship
• As the price goes UP
the demand goes DOWN
Law of Demand:
price and quantity
demanded
move in OPPOSITE
DIRECTIONS
UTILITY:
ability or capacity of a good or
service to be useful and give
satisfaction to someone-
satisfaction, usefulness,
or pleasure it gives us
Do you have the same utility
for these goods?
KEY TERM:
marginal –
additional / next one
How much are you willing to
pay for the first candy bar?
The second?
The third?
The fourth?
What you need to know:
What is diminishing marginal utility?
The definition is a “decrease in additional satisfaction
or usefulness additional units of a product are
acquired”
What you write:
• diminishing marginal utility = the decreasing
satisfaction a consumer receives with the purchase of
each additional unit
Changes in Demand
What you need to know:
Changes in the quantity demanded due to a price
change occurs ALONG the demand curve
Demand Curve for Widgets
•At $3 per Widget, the
Quantity demanded of
widgets is 6.
$6
•An increase in the Price of
Widgets from $3 to $4 will
lead to a decrease in the
Quantity Demanded of
Widgets from 6 to 4.
$5
Price per Widget
$4
$3
Demand Curve for Widgets
$2
$1
$0
0
2
4
6
8
Quantity Demanded of Widgets
10
12
Change in Price =
Change in Quantity
Demanded =
Movement ALONG
the Curve
∆P = ∆Q =
Movement ALONG
the Curve
What you need to know:
Changes in demand (∆D) can also SHIFT in response
to five factors
What you write:
• Buyers (# of) - changes in the number of consumers
• Income - changes in consumers’ income
• Tastes - changes in preference of product/service
• Expectations - changes in what consumers expect to
happen in the future
• Related Goods - complements and substitutes
What you need to know and write:
• Substitute Goods – a substitute is a product that can
be used in the place of another
EXAMPLE:
• If the price of COKE goes UP
• Then the demand of PEPSI goes UP
What you need to know and write:
• Complementary Goods – a complement is a good
that goes well with another good
EXAMPLE:
• If the price of MILK goes UP
• Then the demand of CEREAL goes DOWN
What you need to know and write:
Increase in demand shifts to the RIGHT
(more demanded at each price)
Demand
Increase
Curve
in Demand
for Widgets
•Several factors will
change the demand for
the good (shift the entire
demand curve)
$6$6
•As an example, suppose
consumer income
increases. The demand for
Widgets at all prices will
increase.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Orginal Demand Curve
Demand Curve for Widgets
New Demand Curve
$2$2
$1$1
$0$0
00
2 2
4
4
6
6
8
8
10
10
12
12 14
What you need to know and write:
Decrease in demand shifts to the LEFT (less
demanded at each price)
Demand
Decrease
Curve
in Demand
for Widgets
$6$6
•Demand will also
decrease due to changes
in factors other than price.
•As an example, suppose
Widgets become less
popular to own.
$5$5
Price per Widget
Price per Widget
$4$4
$3$3
Original Demand Curve
Demand Curve for Widgets
New Demand Curve
$2
$2
$1
$1
$0
$0
0
0
2
2
4
4
6
8
6
Quantity Demanded
of Widgets 8
Quantity Demanded of Widgets
10
10
12
12
Change in Price =
Change in Quantity
Demanded =
Movement ALONG
the Curve
∆P = ∆Q =
Movement ALONG
the Curve
Changes in any
of the factors
OTHER THAN PRICE
causes the demand
curve to shift