21.1 Demand and 21.2 Factors Affecting Demand Civics and Economics

An Introduction to Demand Demand: the amount of a particular good or service that consumers want to buy A demand schedule is a table that lists quantities of a product or service someone is willing to buy over a range of prices

Law of Demand As the price of a good increases the amount demanded will decease and as price decreases then demand will increase.

An Introduction to Demand A demand curve is a graph that shows the amount of a product that would be bought at all possible prices Prices are on the vertical axis and quantity is shown on the horizontal axis; each point on the curve shows units sold at each price

An Introduction to Demand Demand curves usually slope downward because people normally buy less of a product if the price is high and more if the price is low According to the law of demand, quantity demanded and price move in opposite directions

Market Demand Companies are interested in market demand- the total demand of all consumers for their product or service, not individual demand Utility is the pleasure, usefulness, or satisfaction we get from using a product; satisfaction usually changes as we consume more of a product Market Demand Curve D1 Represents a Group of Consumers D2 Represents another group D3 Represents a third group of Consumers Red Line represents MARKET DEMAND

Market Demand Marginal utility is the additional satisfaction or use that is derived from each new unit acquired Diminishing marginal utility is the principle that our additional satisfaction, or marginal utility tends to go down as more units are consumed

Market Demand If extra benefits (marginal utility) gained are greater than the marginal costs (money paid) we make the purchase; otherwise we keep our money When the demand curve slopes downward it tells us we would be willing to pay the highest price for the first unit we consume, a slightly lower price for the next, an even lower price for the third, and so on

Changes in Demand When demand goes down people are willing to buy fewer items at all possible prices; in this case demand shifts to the left LOWERS When demand goes up, people are willing to buy more of the same item at any given price; this pushes the demand curve to the right RAISES

What determines demand? Changes in Demand What determines demand? Changes in Population= demand is related to the number of consumers in an area, more people means higher demand Changes in Income= demand changes when consumers’ incomes change; when people have more money they usually spend more Changes in Tastes= changing tastes and popularity of a product can affect demand Changes in Expectations= refers to the way people think about the future; they can force demand higher or lower

Changes in Demand Demand is also affected by the prices of related goods; there are two types of related goods substitutes and complements Substitutes are items consumers can use in place of one another; a change in price of one causes demand for the other to move in the same direction Coffee and Tea are SUBSTITUTES; if the price of coffee goes UP, demand for tea goes UP

Changes in Demand Complements are products that can be used together; the demand for one moves in the opposite direction as the price of the other The only factor that can directly cause a change in the quantity of a good is a change in its price; if the price of coffee goes up demand will fall Computers and Software are COMPLEMENTS; if the price for computers goes UP, demand for software goes DOWN

Elasticity of Demand The law of demand states that price and quantity demanded move in opposite directions; if price goes up demand goes down Demand elasticity is the extent to which a change in price causes a change in quantity demanded Price goes UP Demand goes DOWN Price goes DOWN Demand goes UP

Elasticity of Demand If demand is elastic it means a change in price causes a large percentage of change in quantity demanded; demand can be elastic if there are attractive substitutes, if the item is expensive, or the purchase can be postponed If demand is inelastic it means a change in price has little effect on the quantity demanded; demand can be inelastic if there are few or no substitutes

Elasticity of Demand Demand for medicine and food is inelastic because these are necessities which are goods needed in order to survive; demand for luxuries is elastic because buyers are more able to cut back on quantity demanded

Make a demand curve from the following demand schedule. Practice Make a demand curve from the following demand schedule.

Your demand curve should look like this demand always points DOWN Practice Your demand curve should look like this demand always points DOWN

Things that Cause Changes in Demand Income Level Changes Personal Income Disposable Income Changes in Consumers Expectations Tastes/Trends Substitute Goods Complementary Goods

Substitute Goods Goods that can be used in place of another product Example: Ground Turkey for Ground Beef Can you think of others? If a good exeriences a price change then the substitute good will face a demand change

Complementary Goods Goods that work with another product Turn and Share: What are complementary goods that might be purchased for a new car? A Change in the demand for one will often affect the demand for the other as well