1. Chapter 4.1/4.2 notes
Demand

2. 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

3. 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

4. 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

5. 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.

6. 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

7. 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!!!

8. 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

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

10. 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.

11. 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

12. 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

13. 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

14. 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