Download Chapter 4: Demand

Section 1:
Understanding Demand
 Definition


The DESIRE to own something and
The ABILITY to pay for it
 The


Law of Demand
As prices for an item rise,
the demand for that item drops
As prices for an item drop,
the demand for that item rises
 The

Substitution Effect
Finding a different product to substitute for your
favorite product



As the price of your favorite good rises, the purchasing
of that good (demand) falls
As the price of your favorite good rises, the amount of
purchases (demand) of a decent alternative also rises
If the price of your favorite good drops, you go back to
buying more of your favorite and less of the alternate
 The

Income Effect
If your income drops and
prices remain the same,
demand will drop

If your income rises and
prices remain the same,
demand will rise
 The
Income Effect

INFLATION

If your income stays the
same while prices fall,
demand will rise
If your income stays the
same while prices rise,
demand will fall
.
 Remember:

Economists measure consumption by the
AMOUNT of goods BOUGHT/CONSUMED;
NOT by the amount of MONEY SPENT on goods
 It


 It


looks like a
Chart
Table
lists
Specific AMOUNT of
goods which will be
purchased
at VARIOUS prices
 Individual

The quantity of a good
that a single person will
purchase at various prices
 Market

demand schedule
demand schedule
The quantity of a good
that the population (market)
will purchase at various
prices.
 It
looks like a graph
 The information comes
from a demand schedule
 The

Vertical




axes
Prices
Lowest at the bottom
Highest at the top
Horizontal



Quantities of goods
demanded
Lowest at left
Highest at right
 The
slope

Always DROPS
from left
to right

Visually shows
the Law of
Demand
 It
assumes that all other factors are not
changing
 It



is only accurate for
One specific good
At one specific time
It cannot predict the future