Demand Section 1 – Nature of Demand Chapter 4 Demand Section 1 – Nature of Demand

Quantity Demand The amount of a good or a service that a person is willing and able to buy at each particular price during a given period time.

Law of Demand Increase in a goods price causes a decrease in the quantity demanded. A decrease in a goods price causes an increase in the quantity demanded. INVERSE RELATIONSHIP Price Quantity Demanded

Income / Substitution Effect Income Effect – the amount of money, or income, that people have available to spend on goods and services is called their purchasing power. Any increase or decreases in a persons purchasing power caused by change in price is called the income effect. Substitution Effect – the tendency of consumers to substitute a similar, lower priced product for another product. Example – Dr. Pepper and Dr. Skipper

Diminishing Marginal Utility The more units consumed of one item, the amount of satisfaction received declines. A New Car

Demand Curve Plots the information on the demand schedule. PRICE Quantity Demanded

Pay attention boys and girls! Bartz’s Demand Slope Slope = Change in Y / Change in X Pay attention boys and girls!

Slope Slope = rise = change in vertical axis = y run change in horizontal axis x Example - slope = -5 25 What does this mean? If my price is lowered 5 $ then there would be 25 more products demanded by the public.

Determinants of Demand Consumer taste and preferences Potential consumers Money income Complementary and substitute Goods Price Expectations

Supply A willingness to sell a product at a certain price Law of Supply – People will sell more of a product at a higher price than a lower a price.

Supply Schedule PRICE AND QUANTITY SUPPLIED ARE DIRECTLY RELATED As one goes up the other goes up! QS P

Supply Curve Plots the information from the supply schedule Price Q/S

Determinants of Supply Resource Prices Production Technology Labor Productivity Taxes, Subsides, Regulations

Increase in Supply Curve shifts to the right Price Q/S

Decrease in Supply Shift to the Left Price Q/S

Combine Demand and Supply Price Market Equilibrium D Quantity