1. Demand P S D Q

2. Demand
A relation between the price of a good and the quantity that consumers are willing and able to buy during a given period, other things constant.
Willing: you want to buy the product
Able: you can afford to buy the product

3. Demand Schedule and Curve
Demand curve:
a curve showing the relation between the price of a good and quantity demanded during a given period, other things constant.
Suppose we are making pizza.
Price of Good
Quantity Demanded $3
200 $4
150 $5
100 $6 75 $7 50

4. Law of Demand
States that a quantity of a good demanded during a given period relates inversely to its price, other things constant.
Price increases  Quantity Demanded decreases
Price decreases  Quantity demanded increases
Creates a downward sloping demand curve

5. Why? Substitution Effect Unlimited wants/scarce resources
When the price of a good falls, consumers substitute that good for other goods, which become relatively more expensive.
Reverse also holds true

6. Why?
Income Effect
Money income: is simply the number of dollars received per period
Real income: your income measured in terms of what it can buy.
A fall in the price of a good increases consumers’ real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases.

7. Demand Curve
A curve showing the relation between the price of a good and the quantity demanded.
Price $6 $5
Point on the line that matches the schedule
Every point on the line matches the schedule.
It is a price/quantity demanded that consumers
are willing and able to buy. $4 $3
Demand
Quantity
200 50 75
100
150

8. Movement Along the Demand Curve
Caused by a change in price
Only a change in price
Move from one point to another on the same graph
Called a
Change in quantity demanded.

9. Movement along the Demand Curve
Price B $6 $5 A
Demand 75
100
Quantity

10. Demand Individual demand Market demand
The demand of an individual consumer
Market demand
Sum of individual demands of all consumers in the market

11. Shifts in the Demand Curve
A demand curve isolates the relation between prices of a good and quantities demanded when other factors that could affect demand remain unchanged.
Factors called assumptions or determinants

12. Determinants of Demand
Changes in consumer income
Changes in prices of related goods
Changes in consumer expectations
Changes in the number or composition of consumers
Changes in consumer tastes

13. Changes in determinants
Results in changes to the RELATIONSHIP BETWEEN PRICE AND QUANTITY DEMANDED.
At each and every price a DIFFERENT quantity is demanded.
Results in a shift in the demand curve
New curve must be drawn

14. Changes in Demand Increase in demand P Qd1 Qd2 $4 150 200 $5 100 $6 75
At each and every price MORE of the good is demanded
Shifts to the right
Price P
Qd1
Qd2 $4
150
200 $5
100 $6 75 A B $5 D2 D1
Quantity
100
150

15. Causes for Increase in Demand
Increase in consumer income
Causes consumers to buy more of the product at each and every price.
Normal goods
Inferior goods

16. Change in consumer income
Normal goods
A good for which demand increases as consumer income rise
Inferior goods
A good which demand increases as consumer income falls

17. Changes in Price of Related Goods
Substitutes
Goods that are not consumed jointly
Goods that are related in such a way that an increase in the price of one shifts the demand curve for the other rightward.
Increase in price of Coke leads to increase in demand for Pepsi

18. Changes in Price of Related Goods
Substitutes
Suppose that the price of Coke rises from $1 to $1.50, then the demand for Pepsi will increase from 75 to 100. $1 D2 D1 75
100

19. Changes in the price of related goods
Complements
Goods that are related in a such a way that an increase in the price of one shifts the demand of the other leftward
Two goods that are consumed jointly.
An decrease in the price of one will increase demand for the other

20. Changes in Price of Related Goods
Complements
A decrease in the price of DVD players, increases the demand for DVDs
Suppose that DVD players decrease in price from $145 to $100, now the demand for DVDs will increase from 750 at $20 to 900.
$20 D2 D
750
900

21. Changes in Consumer Expectations
Such as expectations in
Prices and income
Affect how consumers spend their money and their demand
If product cheaper today than tomorrow, then increase in demand

22. Changes in consumer tastes
Consumer preferences likes and dislikes in consumption assumed to be constant along a given demand curve assumed constant along a given demand curve
Changes in taste will cause a shift in the demand curve as different quantities are demanded at each and every price.

23. Changes in taste Consumers prefer platform shoes.
At $50, demand increases from 100 to 200.
$50 D2 D
100
200

24. Change in the number and composition of consumers
The market demand curve is the sum of the individual demand curves.
If the number of consumers falls then the sum will be smaller thus shifting the demand curve

25. Changes in Demand Decrease in demand P Qd1 Qd2 $4 150 110 $5 100 90 $6
At each and every price Less of the good is demanded
Shifts to the Left
Price P
Qd1
Qd2 $4
150
110 $5
100 90 $6 75 60 B $5 A D1 D2
Quantity 90
100

26. Causes of Decrease in Demand
Decrease in consumer income
Causes consumers to buy less of the product at each and every price.

27. Review of Demand
A change in quantity demanded is not a change in demand
Change in quantity demanded is caused by a change in price
Change in quantity demanded is a movement along the demand curve
Change is demand is caused by a change in the determinants
Change in demand shifts the demand curve