1. Principles & Practices
Glencoe McGraw-Hill
Economics
Principles & Practices
Chapter 4 – Demand

2. 4.1 What is Demand?
Objective:
Explain the meaning and concept of demand.
Explain the purpose of a demand schedule.
Illustrate the concept of demand in the form of a graph.

3. I. An Introduction to Demand
Demand is the desire, ability, and willingness to buy a product.

4. I. An Introduction to Demand
An individual demand curve illustrates how the quantity that a person will demand varies depending on the price of a good or service.

6. I. An Introduction to Demand
Economists analyze demand by listing prices and desired quantities in a demand schedule (chart). When the demand data is graphed, it forms a demand curve with a downward slope.

7. DEMAND
SCHEDULE

8. DISUSSION
Think about something you have been wanting to buy. What is its price? At what price would you be willing to buy an item?

9. II. The Law of Demand
The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up.

10. II. The Law of Demand
A market demand curve illustrates how the quantity that all interested persons (the market) will demand varies on the price of a good or service.

12. DISUSSION Why is price a consumer’s obstacle to buying?
Answers will vary but may include that a consumer’s money is limited, and the price of a product forces the consumer to determine how much his or her demand is for the product.

13. III. Demand & Marginal Utility
Marginal utility is the extra usefulness or satisfaction a person receives from getting or using one more unit of a product.

14. III. Demand & Marginal Utility
The principle of diminishing marginal utility states that the satisfaction we gain from buying a product lessens as we buy more of the same product.

15. 4.2 The Law of Demand
Objective:
Explain the causes of a change in quantity demanded.
Describe the factors that could cause a change in demand.
Understand the relationship between the demand curve and diminishing marginal utility.

16. Change in the Quantity
Demanded
The change in quantity shows a change in the amount of a product purchased when there is a change in price.

17. Change in the Quantity
Demanded
The income effect means that as prices drop, consumers are left with extra real income.

18. Change in the Quantity
Demanded
The substitution effect means the price can cause consumers to substitute one product with another similar but cheaper item.

19. II. Change in Demand
A change in demand is when people buy different amounts of the product at the same prices.

20. II. Change in the Demand
A change in demand can be caused by a change in income, tastes, a price change in a related product (either because it is a substitute or complement), consumer expectations, and the number of buyers.

21. 4.3 Elasticity of Demand
Objective:
Analyze the elasticity of demand for a product.
Explain the 3 determinates of demand elasticity.

22. Demand Elasticity
Elasticity measures how sensitive consumers are to price changes.

23. I. Demand Elasticity
Demand is elastic when a change in price causes a large change in demand.

25. Demand Elasticity
Demand is inelastic when a change in price causes a small change in demand.

27. Demand Elasticity
Demand is unit elastic when a change in price causes a proportional change in demand.

29. II. The Total Expenditures Test
Price times quantity demanded equals total expenditures.

30. II. The Total Expenditures Test
Changes in expenditures depend on the elasticity of a demand curve – if the change in price & expenditures move in opposite directions on the curve, the demand is elastic; if they move in the same direction, the demand is inelastic; if there is no change in expeditures, demand is unit elastic.

31. II. The Total Expenditures Test
Understanding the relationship between elasticity and profits can help producers effectively price their products.

32. III. Determinants of Demand Elasticity
Demand is elastic if the answer to the following questions are:

33. III. Determinants of Demand Elasticity
Can the purchase be delayed? Some purchases cannot be delayed, regardless of price changes.

34. III. Determinants of Demand Elasticity
Are adequate substitutions available? Price changes can cause consumers to substitute one product for a similar product.

35. III. Determinants of Demand Elasticity
Does the purchase use a large portion of income? Demand elasticity can increase when a product commands a large portion of a consumer’s income.