1. Demand
Ch. 4

2. What Is the Law of Demand?
As Prices go down
quantity demanded goes up

3. Law of Demand (cont.)
As prices go up
quantity demanded goes down

4. Quantity Demanded
The amount of a good or service that will be purchased at a specific price
Quantity demanded (Qd) – is just a point on the curve
Only price can change the Qd

5. Individual Demand Schedule Market Demand Schedule
The Demand Schedule
Demand Schedules
Individual Demand Schedule
Price of a slice of pizza
Quantity demanded per day
Market Demand Schedule
Price of a slice of pizza
Quantity demanded per day
$.50
$1.00
$1.50
$2.00
$2.50
$3.00 5 4 3 2 1
$.50
$1.00
$1.50
$2.00
$2.50
$3.00
300
250
200
150
100 50

6. Price per slice (in dollars)
The Demand Curve
Market Demand Curve
3.00
2.50
2.00
1.50
1.00
.50 50
100
150
200
250
300
350
Slices of pizza per day
Price per slice (in dollars)
When reading a demand curve, assume all outside factors, such as income, are held constant.
Demand

7. Shifts in Demand
Ceteris paribus is a Latin phrase economists use meaning “all other things held constant.”
When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.

8. What Causes a Shift in Demand?
Several factors can lead to a change in demand:
1. Income – Normal Goods & Inferior Goods
2. Population or the number of consumers
3. Consumer expectations

9. 4. Consumer tastes & advertising 5. Prices of Related goods
Cont.
4. Consumer tastes & advertising
5. Prices of Related goods
Price of a substitute
Price of a complement

10. What Is Elasticity of Demand?
Elasticity of demand is a measure of how consumers react to a change in price.

11. Inelastic
Demand for a good that consumers will continue to buy despite a price increase
Consumers are not very sensitive to an increase in price

12. Elastic
Demand for a good that is very sensitive to changes in price
A small change in price leads to relatively large change in the Qd

13. Calculating Elasticity
Elasticity = percentage change in in quantity demanded/ percentage change in price
Or E= % change in Qd/ % change in P
Percentage change = original number – new number/ original number x 100

14. Values of Elasticity
Elasticity is< 1 = inelastic
Elasticity is > 1 = elastic
Elasticity is “0” = unitary

15. Factors Affecting Elasticity
1. Availability of Substitutes
2. Relative importance
3. Necessities vs. Luxuries
4. Change over time