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What is Demand? ©2012, TESCCC Economics Unit 4, Lesson 1.

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Presentation on theme: "What is Demand? ©2012, TESCCC Economics Unit 4, Lesson 1."— Presentation transcript:

1 What is Demand? ©2012, TESCCC Economics Unit 4, Lesson 1

2 Objectives 1.Know the definition of demand. 2.Explain the three conditions for demand. 3.Describe and construct a demand schedule. 4.Construct a demand curve. 5.Explain the law of demand. 6.List and explain the three concepts that explain the law of demand. ©2012, TESCCC

3 DEMAND – Definition Amount of goods and services a consumer is willing and able to buy at various prices in a given time period ©2012, TESCCC

4 Conditions for Demand In this definition, we see there are three conditions for demand. 1. Willingness or desire 2. Ability – Financial means 3. Given time period ©2012, TESCCC

5 Are you willing to buy a Maserati? Do you want one? ©2012, TESCCC

6 Are you able to buy a Maserati? We mean financial ability. ©2012, TESCCC

7 Specific Time Period Will you buy a Maserati this year? ©2012, TESCCC

8 All buyers generally behave the same way, so we can make some generalities. ©2012, TESCCC

9 When price increases... quantity demanded decreases. OR When price decreases... quantity demanded increases. ©2012, TESCCC

10 This is called the law of demand!!! It shows the inverse relationship between price & quantity demanded. P QD ©2012, TESCCC

11 Demand Schedule Demand schedule – shows quantity demanded at various prices for one consumer Market Demand schedule – shows quantity demanded by all consumers in the market ©2012, TESCCC

12 Price Quantity Demand Schedule ©2012, TESCCC

13 Demand Curve You see a demand curve slopes downward, from left to right, showing the inverse relationship between price and quantity demanded. ©2012, TESCCC

14 P Q ©2012, TESCCC

15 P Q D ©2012, TESCCC

16 Limitations of Demand Curve The demand curve is only accurate for one set of conditions. It only shows changes in price. If anything other than price changes then the demand curve will no longer be valid. ©2012, TESCCC

17 Concepts That Explain the Law of Demand (why the demand curve slopes downward) ©2012, TESCCC

18 1. The Income Effect The price of an item goes up or down, and it is as if your income has changed; causing the quantity demanded to change. ©2012, TESCCC

19 2. Substitution Effect If the price of an item changes, especially if it goes up, a consumer will substitute another item that is cheaper. This causes the quantity demanded to change. ©2012, TESCCC

20 3. Diminishing Marginal Utility As each additional unit of a good or service is consumed, the satisfaction received from consuming that good decreases. For example, the first hamburger you eat is great but the second is not as satisfying, so you would not be willing to pay as much for it. The third brings even less satisfaction. ©2012, TESCCC


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