1. Section 1: What is Demand?
Section 2: Factors Affecting Demand
Section 3: Elasticity of Demand
2. Demand is more than the desire to have a
product.
Demand – the desire, ability, and willingness
to buy a product.
Demand is a microeconomic concept.
Microeconomics – the part of economics that
studies small units such as individuals and
firms.
Demand is easy to understand because it only
involves 2 variables – price and quantity.
3. Demand Schedule – shows the various
quantities demanded of a particular product
at all prices that might prevail in the market
at a given time.
5. The demand schedule can be plotted visually
or graphically on a demand curve.
Demand Curve – a curve that shows the
quantities demanded at all possible prices.
7. The prices and quantities in the previous
demand schedule and demand curve point
out a feature of demand:
For practically every good or service that we
might buy, higher prices are associated with
smaller amounts in demand, while lower
prices are associated with larger amounts
demanded.
This is known as the Law of Demand.
8. Market Demand Curve – a curve that shows
how much of a product ALL consumers will
buy at all possible prices.
Remember from Chapter 1, utility is the
amount of usefulness or satisfaction that
someone gets from the use of a product.
Marginal Utility – additional satisfaction or
usefulness a consumer gets from having one
more unit of a product.
9. The reason we buy something in the first
place is because we feel that the product is
useful and will give satisfaction, but this
changes the more we use a product.
Diminishing Marginal Utility – principle that
states that the extra satisfaction we get from
using additional quantities of a product
begins to decline.
Because of this, we are usually unwilling to
pay as much for the second, third, etc.
10. Go to page 112 and answer questions 17 –
19.
You may use your notes/book, as always.
This is a 100 point quiz, turn it in when done.
11. Change in Quantity Demanded – a change
that is graphically represented as a
movement along the demand curve.
Income Effect – the part of change in quantity
demanded due to a change in the buyer’s real
income when a price changes.
Substitution Effect – the part of a change in
quantity demanded due to a price change
that makes other products more or less
costly.
12. Change in Demand – shift of the demand
curve when people buy different amounts at
every price.
14. 40
35
30
25 Increase in
Price
20 Demand
15 D
10 D'
5
0
0 1 2 3 4 5 6 7 8 9 1011121314151617181920
Quantity
15. Substitutes – competing products that can be
used in place of one another.
Substitutes are important when a change in
the price of a product causes a change in
demand.
For example, if we think of butter and
margarine as substitutes, then a rise in the
price of butter would lead to a decrease in the
demand for butter and an increase in the
demand for margarine; and vice versa.
16. Complements – products that increase the
use of other products.
If computers are a complement to
software, then a rise in the price of
computers would cause the demand for
computers to go down as well as the demand
for software.
We see that a change in income, consumer
tastes, and prices of related products affects
individual demand curves and thusly, the
market demand curve.
17. Go to page 112 and answer questions 20 –
21.
You may use your notes/book, as always.
This is a 100 point quiz, turn it in when done.
18. Demand Elasticity – the extent to which a change
in price causes a change in the quantity
demanded.
Elastic – type of elasticity where a change in price
causes a relatively larger change in quantity
demanded.
Inelastic – type of elasticity where a change in
price causes a relatively smaller change in
quantity demanded.
Unit Elastic – type of elasticity where a change in
price causes a proportional change in quantity
demanded.
19. We find the total expenditures by multiplying
the price of a product by the quantity
demanded for any point along the demand
curve.
For elastic demand curves - price goes
up, total expenditures go down; for inelastic –
price goes down, expenditures go down; for
unit – price goes down, no change in
expenditures.
20. 3.5
a
3
2.5 Expenditure $6=$3
P
r 2 b per 2 units
i Expenditure $8=$2
c 1.5
per 4 units
e
1 Overlap
0.5
0
0 1 2 3 4 5
Quantity
21. 3.5
3 a’
2.5 Expenditure $6=$3
P per 2 units
2 b’
r
i Expenditure $5=$2
1.5
c per 2.5 units
e 1 Overlap
0.5
0
0 0.5 1 1.5 2 2.5 3 3.5 4
Quantity
22. 3.5
3 a’’
2.5 Expenditure $6=$3
P
r 2 b’’ per 2 units
i Expenditure $6=$2
c 1.5
per 3 units
e
1 Overlap
0.5
0
0 1 2 3 4
Quantity
23. Type of Elastic Inelastic Unit Elastic
Demand
Change in
Price
Change in No
Expenditure Change
24. Go to page 112 and answer questions 22 –
24.
You may use your notes/book, as always.
This is a 100 point quiz, turn it in when done.
