Download DEMAND

DEMAND
DEFINITION
A schedule or a curve that shows the various
amounts of a product that consumers are
willing and able to purchase at each of a
series of possible prices during a specified
period of time.
DEMAND SCHEDULE

A Demand Schedule shows the prices and
related quantity demanded for a product.
DEMAND CURVE

A Demand Curve shows the information
from the demand schedule in the form of
a graph.
The Demand Schedule and the Demand
Curve are two different ways to show the
same information.
LAW OF DEMAND
The law states that “all else equal, as
price falls, the quantity demanded
rises, and as price rises, the quantity
demanded falls.”
There is an INVERSE relationship between
price and quantity demanded on a demand
curve or demand schedule.
REASONS WHY THERE IS AN
INVERSE RELATIONSHIP BETWEEN
P and QD

1. Common Sense
– price is a great
determining
factor in the
purchasing
decisions of
consumers.

2. Substitution Effect –
at a lower price buyers
have the incentive to
substitute what is now a
less expensive product
for similar products that
are now relatively more
expensive. The product
whose price has fallen is
not a “better deal”
relative to other
products.
REASONS WHY THERE IS AN INVERSE
RELATIONSHIP BETWEEN P and QD
3. Diminishing Marginal Utility – because
successive units of a particular product yield
less and less marginal utility, consumers will
buy additional units only if the price of those
units is progressively reduced.
4. Income Effect – a lower price increases the
purchasing power of a buyer’s money income,
enabling the buyer to purchase more of the
product than before.
MARKET DEMAND is
demonstrated by adding the
quantities demanded by all consumers at each of the
various possible prices.
THE DETERMINANTS OF DEMAND
are the factors, other than price, that affect purchases.
•
1. Change in Buyer
Tastes
•
The popularity of big
cars increases the
demand for oil and
gasoline
THE DETERMINANTS OF DEMAND
are the factors, other than price, that affect
purchases.

2. Change in Number of Buyers in the Market
Example: An increase in the birthrate increases the demand
for housing
Change in Number of Buyers in the
Market
Example: A rare or unique good that
is desirable.
THE DETERMINANTS OF DEMAND
are the factors, other than price, that
affect purchases.
3. Change in Income
Example: A rise in income increases the demand for
goods
normal
such as restaurant meals, sports tickets, and necklaces
while reducing the demand for
Inferior
goods such as cabbage, turnips, and
inexpensive wine.
THE DETERMINANTS OF DEMAND
are the factors, other than price, that
affect purchases.

4. Change in the Prices of Related Goods
Example: A reduction in airfares reduces the
demand for bus transportation (substitute
goods);
a decline in the price of golf clubs increases the
demand for golf balls (complementary goods)
THE DETERMINANTS OF DEMAND
are the factors, other than price,
that affect purchases.
5. Change in Consumer Expectations
Example: Inclement weather in South America creates an
expectation of higher future prices of coffee beans,
thereby increasing today’s demand for coffee beans.
CHANGES IN DEMAND

Any changes in the Determinants of Demand will
result in a in a new Demand Curve. Changes in
things other than the price of the good or service
will lead to the need for a new demand curve to
be drawn.
CHANGES IN QUANTITY
DEMANDED
It is a movement from one point to another point – from
one price-quantity combination to another – on a fixed
demand schedule or demand curve. PRICE IS THE
DETERMINANT that results in the movement along a
demand curve.