Demand

Outline I. What is Demand? A. Demand Schedules B. The Law of Demand C. Demand Curves/Market Demand II. Change in Demand vs. Change in Quantity Demanded A. Change in Demand B. Change in Quantity Demanded

What is Demand? As we discussed earlier - there is a limited amount of goods out there. So how do we decide what we want? The concept of demand captures this issue. Demand is made up of two elements: –Desire for Goods and Services –Means to purchase those Goods and Services

Demand Schedules Lets consider how many CDs you might demand in a month. (This is called “Quantity Demanded”) We will first look at this information in a table called a “Demand Schedule” Demand Schedule - a table showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus. –ceteris paribus: means "assuming all else is held constant". The attempt to distinguish an effect of one kind of change from any others.

Demand Schedule

Law of Demand Law of Demand - the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus.

Demand Schedules and Curves Another way of characterizing Demand instead of using a schedule is a Demand Curve. Demand Curve - a diagram showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus.

Demand Curve

P($) Q d per month Note: ALWAYS label your axes!

Demand Curve P($) Q d per month

Demand Curve P($) Q d per month A

Demand Curve P($) Q d per month A B

Demand Curve P($) Q d per month A B C

Demand Curve P($) Q d per month A B C D

Market Demand Curve The demand curve we just drew was the Demand for CDs by one person. Market Demand Curve - a curve showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus.Market demand curves are obtained by summing the demand curves of individual consumers.

Market Demand Schedule Market Demand Schedule - a table showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus. Market demand schedules are obtained by summing the demand schedules of individual consumers.

Market Demand Schedule

Change in Demand vs. Change in Quantity Demanded This is a very important distinction. In short - a change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price.

Change in D vs. Change in Q d Change in Demand - a change in the desire or means to purchase the good, thus there is a change in quantity demanded at EVERY price. Change in Demand - a shift of the demand curve A demand curve is drawn under the assumption of ceteris paribus. When this assumption is relaxed, the entire demand curves shifts

Change in D vs. Change in Q d Changes in Demand Increase in demand - demand curve shifts to the right Decrease in demand - demand curve shifts to the left

Change in Quantity Demanded Change in Quantity Demanded (  Q d ) - movement along a demand curve A change in quantity demanded can only be caused by a change in the price of the good. Changes in Quantity Demanded Increase in Q d - a movement to the right along a demand curve Decrease in Q d - a movement to the left along a demand curve

Increase in Demand

P QdQd

P QdQd D

P QdQd D

P QdQd D D’

Increase in Q d

P($) QdQd

Increase in Q d P($) QdQd D

Increase in Q d P($) QdQd D A

Increase in Q d P($) QdQd D A

Increase in Q d P($) QdQd D A B