+

DemandChapter 4Sections 1 & 2What is Demand?What Factors Affect Demand?

+Demand

The Law of Demand Demand-The desire for an item and the ability to pay for it Law of Demand-When the price of good or service goes up,

quantity demand goes down and when price of good or service goes down, quantity demand goes up

Example Law of demand explains consumer behavior as well as

economic concept Spend $45 on DVDs

$15 each gets 3 $5 each gets 7

Demand is the willingness to buy a good or service and the ability to pay for it

+Demand Schedules

Demand Schedule- a table that summarizes one consumer’s behavior List how much of an item an individual will buy at each

price

Market Demand Schedule- A table that summarizes all consumers’ behavior List how much of an item all consumers will buy at each

price

+Demand Schedules

Demand Schedule is a 2-column table Left handed side list

various prices of a good or service

Right handed side gives quantity demanded at each price

DVD Demand Schedule Quantity demanded and

price have an inverse relationship

Business owners need information about consumer demand Helps them price good to get

the most sales

Market Research-gather and evaluate data about customer preferences

Market Demand Schedule similar to individual demand schedule Except quantities demanded

are larger Market demand also depends

on price

Example: Individual Demand Schedule

Example: Market Demand Schedule

+Demand Curves

Demand Curve-A graph that shows amount of an item a consumer will buy at each price

Market Demand Curve-Amount all consumers will buy at each price

Demand curves graphically show information found on demand schedules

+Demand Curves

Demand curve is a visual representation of law of demand Assumes all factors are

the same

Vertical axis shows prices

Horizontal axis shows quantities demanded

Demand curve slope down from upper left to lower right

Same as individual curve

Includes all consumers of a product

Inverse relationship between price and quantity demanded

Individual Demand Curve Market Demand Curve

+What Factors Affect Demand?

Law of Diminishing Marginal Utility-marginal benefit of each additional unit declines as each unit is used

Income Effect-amount people buy changes as purchasing power of their income changes

Substitution Effect-amount people buy changes as they buy substitute products

Change in Quantity Demanded-changes because of price, changes are on demand curve, does not shift the curve itself

+Change in Demand

Change in Demand-caused by a change in the marketplace Prompts different buying amounts Shift in demand

6 Factors

+Change in Demand

Factor 1-Income Change in income

Normal Goods-demand more when income goes up

Inferior Goods-demanded less when income goes up

Factor 2-Market Size Numbers of consumers

change

Factor 3-Consumer Tastes Changes in Tastes

Factor 4-Consumer Expectations Expected price changes

can change demand

Factor 5-Substitutes Products used in the

place

Factor 6-Complements Complements-Goods that

are used together

+ Vocabulary

Demand The desire for an item and the ability to pay for it

Law of Demand

When the price of good or service goes up, quantity demand goes down and when price of good or service goes down, quantity demand goes up

Demand Schedule

a table that summarizes one consumer’s behavior, lists how much of an item will be bought at each price

Market Demand Schedule

A table that summarizes all consumers’ behavior, lists how much of an items all consumers will by at each price

Demand Curve A graph that shows amount of an item a consumer will buy at each price

Market Demand Curve

Amount all consumers will buy at each price

Law of Diminishing Marginal Utility

Marginal benefit of each additional unit declines as each unit is used

+ Vocabulary

Income Effect

amount people buy changes as purchasing power of their income changes

Substitution Effect

amount people buy changes as they buy substitute products

Change in Quantity Demanded

changes because of price, changes are on demand curve, does not shift the curve itself

Change in Demand

caused by a change in the marketplace

Normal Goods

demand more when income goes up

Inferior Goods

demanded less when income goes up

Complement

Goods that are used together