1. CHAPTER 3, SECTION 1- THE NATURE OF DEMAND
ECONOMICS
CHAPTER 3, SECTION 1-
THE NATURE OF DEMAND

2. I. Demand
A. Demand (D) is the amount of a good or service a consumer is willing and able to purchase at various prices during a given period of time.
W + A = D

3. I. Demand
B. Quantity Demanded (QD) is the amount of a good or service a consumer is willing and able to purchase at each price during a given period of time.

4. I. Demand C. What is the difference between D and QD?
D measures W + A at various prices.
QD measures W + A at one (particular) price.

5. II. The Law of Demand
A. When the price of a good or service increases, the quantity demanded decreases.
When the price of a good or service decreases, the quantity demanded increases.
B. This is an inverse (opposite) relationship.

6. II. The Law of Demand
P QD

7. III. Demand Schedule
A. A demand schedule illustrates the relationship between the price of a good or service and the quantity demanded for the good or service.
B. The demand schedule shows the law of demand.

8. III. Demand Schedule Price Per Car Quantity Demanded $10,000 1000
$8,000
1200
$6,000
1500
$4,000
3000
$2,000
5000

9. IV. Demand Graphs
A. A demand graph is a graphic illustration of the demand schedule.
B. A demand curve plots the information from the demand schedule on to the demand graph.
C. Each plotted point on the graph represents a specific combination of price and quantity demanded.
D. The demand curve slopes downward, right.

10. Price Per Car
Quantity Demanded
$10,000
1000
$8,000
1200
$6,000
1500
$4,000
3000
$2,000
5000
10,000
8,000 P
6,000
4,000
2,000 D
1,000
1,200
1,500
3,000
5,000 QD

11. V. Examples of the Law of Demand
A. The Income Effect
1. Purchasing Power-The amount of money one has available to spend on goods and services.
2. Any change in a consumers’ purchasing power which is caused by a change in price
3. The income effect may not always apply.

12. V. Examples of the Law of Demand
PP D

13. V. Examples of the Law of Demand
B. The Substitution Effect
1. Substitute goods-Goods that can be used in place of one another.
2. Consumers tend to substitute a similar, lower-priced good for another good that is higher-priced.
3. The substitution effect may not always apply.

14. V. Examples of the Law of Demand
P (original good) D (substitute good)

15. V. Examples of the Law of Demand
C. Diminishing Marginal Utility
1. Utility-Usefulness or satisfaction gained from the consumption of a good or service.
2. With each additional unit of consumption of a good or service, less satisfaction from each unit of consumption will be received.

16. V. Examples of the Law of Demand
3. Demand will decrease because at some point, consumers cannot use any more of a good or service.