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IT’S THURSDAY…
Identify the following
1. Demand
2. Law of demand
3. Demand schedule
4. Market demand schedule
5. Demand curve
6. Substitution effect
7. Income effect
Remember: In a
market, buyers
demand goods,
sellers supply
those goods, and
the interactions
between the 2
groups lead to an
agreement on the
price & quantity of
trade.
DEMAND
Demand
• The desire to own
something AND the
ability to pay for it
PRICE
As prices
go
down…
• Law of Demand
– when a good’s price is
lower, consumers will
buy more of it
– when the price is
higher, consumers buy
less
DEMAND
Quantity
demanded
goes up
• Law of demand is a
result of 2 behavior
patterns
– Substitution
effect: consume
less of one good and
more of a substitute
good
• Ex: if price of pizza goes
up replace it with an
alternative like a taco
– Income effect:
change in consumption
resulting from a change
in real income
• Ex: if the price of pizza
goes up but you don’t
increase buying of a
replacement
Demand = 2
behaviors
Demand Schedule
• Individual Demand Schedule: Table
that lists the quantity of a good that a
person will purchase at each price in a
market
• Market Demand Schedule: shows the
quantities demanded at each price by all
consumers in the market (looks like
individual with same prices but with
larger quantities demanded)
Limits of a Demand Curve
• Only accurate for one
very specific set of
market conditions
• Based on fact that all
other factors are
held constant
• Demand curves can
shift because of
changes in factors
other than price
ALL DEMAND
SCHEDULES &
CURVES
REFLECT THE
LAW OF
DEMAND!!!
(higher prices, less
demand)
Ceteris paribus
• “all other things held
constant”
• Only taking into
account the price of
an item
• Not looking at the
other factors that
would change demand
(ex: a change in
quality)
Changes in Demand
• When we drop the ceteris
paribus rule and allow
other factors to change, we
no longer move along the
demand curve
• Instead, the entire demand
curve shifts
• A shift in the demand curve
means that at every price,
consumers buy a different
quantity than before
• The shift = change in
demand
What causes a shift?
• Income:
– when income increases, demand for normal
goods increase (curve shifts right)
– When income increases, demand for inferior
goods decreases (curve shifts left)
• Consumer expectations
• Population: if population increases demand
for houses would increase; baby boom
generation
• Consumer tastes & Advertising
Prices of Related Goods
• The demand curve for
one good can be
affected by a change in
the demand for another
good.
• Complements: hot dogs
and hot dog buns
• Substitutes: skis and
snowboards
Draw a Demand Curve
Price
Quantity
Demanded
$1.00
250
$2.00
200
$3.00
150
$4.00
100
$5.00
50
1.Draw a demand curve
using the information
from the demand
schedule.
2.Draw and label a new
curve resulting from an
increase in demand.
3.Draw and label a new
curve resulting from a
decrease in demand.