1. Chapter 4:
DEMAND

2. Objectives
Describe & illustrate the concept of demand.
Explain how demand & utility are related.
Explain what causes a change in quantity demanded
Describe the factors that can cause a change in demand.
Define & analyze the elasticity of demand for a product.

3. Ch 4 Key Terms demand demand schedule demand curve Law of Demand
marginal utility
diminishing marginal utility
change in quantity demanded
income effect substitution effect
change in demand substitutes
complements elasticity
demand elasticity elastic
inelastic unit elastic

4. Demand is NOT just the desire to have or own a certain product
What is demand?
Demand is NOT just the desire to have or own a certain product
DEMAND is the DESIRE, ABILITY, and WILLINGNESS to BUY a product
When I want or need something, do I demand it?
No, I must buy it.

5. Analyzing Demand
A demand schedule is a listing that shows the number demanded at different prices (table form)
Price
Quantity Demanded

6. The line is ALWAYS downward sloping
A demand curve shows the quantity demanded at each & every possible price that may prevail in the market (line graph form)
The line is ALWAYS downward sloping
Lower quantity will be demanded at higher prices
Higher quantity demanded at lower prices
A change in price reflects movement along the curve (change in quantity demanded)

7. There is an inverse relationship between price & quantity demanded
The Law of Demand
There is an inverse relationship between price & quantity demanded
If price increases, demand decreases
If price decreases, demand increases

8. Demand and Marginal Utility
Utility is the amount of usefulness or satisfaction someone gets from the use of a product
Marginal utility is the extra satisfaction one gets from getting one more unit of the product
Diminishing marginal utility is the decreasing satisfaction as additional units of a product are acquired

9. CHANGE IN
QUANTITY
DEMANDED
VS.
DEMAND

10. Change in Quantity Demanded
A change in price will cause a change in the quantity demanded, which is represented by movement along the demand curve
This may occur because of 2 reasons:
The Income Effect: change in price alters consumers’ real income (prices drop, you have more income to spend)
The Substitution Effect: change in the relative price of the product (as compared with prices of other products)
Together, they explain why consumers increase consumption when prices drop

11. If a change in demand is NOT caused by a change in PRICE, the entire demand curve will shift = CHANGE IN DEMAND

12. Change in Demand
People are now willing to buy different amounts of the product at the same prices
Entire demand curve shifts
To the RIGHT shows an increase in demand
To the LEFT shows a decrease in demand
Change in demand results in an entirely new curve

13. Factors that cause a change in demand (other than price):
Write at least 3 facts for each.
Consumer Income
Consumer Tastes
Prices of Related Goods
Substitute Goods
Complementary Goods
Change in Expectations
Number of Consumers

14. Elasticity of Demand

15. Elasticity is an important cause-and-effect relationship in economics
Demand elasticity is the extent to which a change in price causes a change in the quantity demanded
Will a change in price cause a relatively larger, a relatively smaller, or a proportional change in quantity demanded?

16. Demand is ELASTIC: a change in price causes a relatively larger change in quantity demanded
Demand is INELASTIC: a change in price causes a relatively smaller change in quantity demanded
Demand is UNIT ELASTIC: a change in price causes a proportional change in quantity demanded

17. What determines demand elasticity?
Can the purchase be delayed?
Yes: tends to be elastic
No: tends to be inelastic
Are adequate substitutes available?
Does the purchase use a large portion of income?