2. There are substitutes for
EVERYTHING!
The law of demand is dependent on the notion
that for anything there is a substitute which will
be used when the opportunity cost of a thing is
high enough.
Definitions:
--Substitute: things are used in place of
something else
--Complement: things that are used together
--Independent Goods: neither substitutes or
complements
3. Demand
Individual Demand Schedule—a table that
lists the number of items demanded by
one person at various prices
Market Demand Schedule—a table that
lists the number of items demanded by an
entire market or group of people
5. Demand
Individual Demand Curve—the graphic
representation of the individual demand
schedule
Market Demand Curve—the graphic
representation of the market demand
schedule
6. Demand
The demand curve is almost always
downward sloping
The vertical axis is always labeled PRICE
The horizontal axis is always labeled
QUANTITY
7. Demand
Law of Demand—quantity demanded of a
good and its price vary INVERSELY,
ceteris paribus
--ceteris paribus means that if all other
factors are held constant, then as the price
of the good rises, the quantity demanded
of the good will fall
8. Demand
Utility—a product’s use or how much
satisfaction or use a person gets out of a
product
Can anyone think of why utility will affect
demand? Why are we returning to utility?
9. Demand
Marginal Utility—how much MORE a
person will get out of adding ONE MORE
unit of a product
How much utility will you get from a glass
of lemonade on a hot day?
How much MORE utility will you get from a
second glass?
A 10th glass? A 50th glass? A 100th
glass?
10. Demand
Diminishing Marginal Utility—the
satisfaction (or utility) obtained from
consuming a good declines as more units
of the good are consumed
This is why demand curves slope
downward.
11. Change in Quantity Demanded
Abbreviated ΔQd
Change in Qd is represented as a
movement along the demand curve and
results from a change in price
13. Change in Qd
The only thing that will result in a Change
in Qd is a change in price of the product
we are talking about
This is just a movement ALONG the curve
that is already given—going from one
point to another
14. Change in Demand
Abbreviated ΔD
Change in D—portrayed as a shift of the
ENTIRE demand curve and it is caused
when something changes the quantity of a
product demanded at each price
15. Change in D
This is when you get an entirely NEW
curve, so each point has changed. Now
people are demanding more or less of the
product at each price.
Can you think of anything that would do
this? What would cause you to buy more
or less CDs, even though the price of the
CD stays the same?
16. Change in Demand
Determinants of Demand—things that will cause
a change in D
--A change in the price of substitutes
--A change in the price of complements
--A change in consumer income
--A change in population
--A change in consumer tastes
--A change in consumer expectations
17. Increases in Demand
The entire demand curve shifts RIGHT.
(Demand curves only shift RIGHT or
LEFT, never UP or DOWN!) This is
because at each given price there is now
more quantity demanded. To show there
is an increase in quantity, we move RIGHT
because our quantity axis increases as we
move further to the right.
18. Decreases in Demand
The entire demand curve shifts LEFT.
This is because at each given price there
is now less quantity demanded. To show
there is a decrease in the quantity, we
move left because our quantity axis
decreases as we move further to the left.
20. Demand Elasticity
Demand elasticity is the extent to which a
change in price causes a change in
quantity demanded
How much does price influence how much
we buy of a product
21. Demand Elasticity
Elastic Demand—when a given change in
price causes a relatively larger change in
Qd
Inelastic Demand—when a given change
in price causes a relatively smaller change
in Qd
Unit Elastic—when a given change in price
causes a proportional change in Qd
22. Determinants of Demand
Elasticity
Can the purchase be delayed?
--If yes, demand tends to be elastic
--If no, demand tends to be inelastic
Are adequate substitutes available?
--If yes, demand is usually elastic
--If no, demand is usually inelastic
23. Determinants of Demand
Elasticity
Does the purchase use a large portion of
income?
--If yes, demand tends to be elastic
--If no, demand tends to be inelastic
26. Examples
What is something that you would still buy,
even if there was a drastic increase in
price?
What is something you would stop buying
or limit your purchase of if there was just a
small change in price?