Chapter 4.1/4.2 notes Demand

Demand the desire, ability, and willingness to buy a product a microeconomic concept Law of Demand – when price goes up, quantity demanded goes down and vice versa. P = Price Qd = quantity demanded

demand schedule – listing that shows the various quantities demanded at each price Demand curve – a graph showing the information from a schedule Market Demand Curve –shows the quantities demanded by everyone

Catherine’s Demand Schedule and Demand Curve Price of Ice-Cream Cone $3.00 2.50 1. A decrease in price ... 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of 2. ... increases quantity of cones demanded. Ice-Cream Cones

The Market Demand Curve When the price is $2.00, Catherine will demand 4 ice-cream cones. The market demand curve is the horizontal sum of the individual demand curves! When the price is $2.00, Nicholas will demand 3 ice-cream cones. The market demand at $2.00 will be 7 ice-cream cones. + Catherine’s Demand Nicholas’s Demand = Market Demand Price of Ice-Cream Cone Price of Ice-Cream Cone Price of Ice-Cream Cone 2.00 2.00 2.00 1.00 1.00 1.00 7 13 4 8 3 5 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones When the price is $1.00, Catherine will demand 8 ice-cream cones. When the price is $1.00, Nicholas will demand 5 ice-cream cones. The market demand at $1.00, will be 13 ice-cream cones.

Reason D curve is downward sloping Diminishing marginal utility- the extra satisfaction we get from using additional quantities of the product begins to diminish. Ex: pizza

Change in the Quantity Demanded a movement along the demand curve because of a change in P The only thing that changes Qd directly is a change in P!!!

Changes in Quantity Demanded A tax on sellers of ice-cream cones raises the price of ice-cream cones and results in a movement along the demand curve. Price of Ice-Cream Cones B $2.00 A 1.00 D 4 8 Quantity of Ice-Cream Cones

Change in Demand the entire demand curve shifts Increase in D = shift right Decrease in D = shift left

Reasons D curve shifts Consumer Income – if incomes go up, D increases Consumer Tastes – development of new products, people get tired of a product, etc. Ex: demand for healthier food in recent years.

Cont’d Change in Expectations – way people think about the future; Ex: buy more now if you think P will go up later Number of Consumers: more = Increase in D; less = Decrease in D

Substitutes – can be used in place of other products; If P of 1 goes up, D of 2 up Ex: margarine and butter Complements – related goods; the use of one good increases the use of the other. If P of 1 goes up, D of 2 goes down Ex: hot dogs, hot dog buns

Normal good – goods that consumers demand more of when their incomes rise. Ex: steak Inferior good – goods that consumers demand less of when their incomes rise. Ex: Ramen noodles

Figure 3 Shifts in the Demand Curve Price of Ice-Cream Cone Increase in demand Decrease in demand Demand curve, D 2 Demand curve, D 1 Demand curve, D 3 Quantity of Ice-Cream Cones