Transcript Demand Curve

Drill 9/12/07
What is DEMAND?
Demand = the desire to own
something and the ability to pay
for it
The Law of Demand
When the price is lower, the consumer will
buy more of it. When the price is higher the
consumer will buy less of it.
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Substitution Effect – As the price rises, consumers
are more likely to buy an alternative product and
that causes a drop in demand
Buying Power – If the price rises the consumer will
feel poorer and will not purchase as much of the
product and that will cause a drop in demand
The Law of Demand
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Diminishing Personal Value – If the price is
high people place a high value on the
product but as the price falls consumers do
not value the product as much and thus
may buy more of it
Diminishing Marginal Utility – the point
reached when the next item consumed is
less satisfying than the one before
Demand Schedule
A table that lists the quantity of a good
that a person will purchase at each
price in a market
Market demand schedule – Shows the
quantities demanded by all consumers
in the market
Demand Schedule
Price
$100
Quantity
Demanded
2
$80
6
$60
10
$40
14
$20
18
Demand Curve
Graphic representation of a demand
schedule
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Price is listed on the vertical axis and
quantity demanded is listed on the
horizontal axis
Demand curves always slope downward
and to the right (inverse relationship)
Demand curves are limited – only accurate
for a specific set of conditions
Demand Curve
PRICE
$100
$80
$60
$40
$20
0
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•
D1
QUANTITY
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Ceteris Paribus
Ceteris paribus means all other things
being equal
When looking at a demand curve you
can only isolate one thing.
Changes in Demand
PRICE
$100
$80
$60
$40
$20
0
Movement along the demand curve
is called an increase or decrease in
the quantity demanded.
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•
•
•
•
D1
QUANTITY
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Causes for the
Shift in Demand
1. Income

Normal goods – goods that consumers demand
more of when their income increases
 For an increase in demand the demand curve shifts to
the right
 For a decrease in demand the demand curve shifts to the
left

Inferior goods – goods that consumers demand
less of when their income increases
 Used cars or generic foods
Causes for the
Shift in Demand
2. Consumer Expectations

Current demand for a good is positively
related to its expected future price
 If you expect the price to rise your demand
increases
 If you expect the price to fall your demand
decreases
Causes for the
Shift in Demand
3. Population

A rise in the population will effect the
demand of a certain good
 Food, houses, cars…
4. Consumer tastes and advertising
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Fads
Advertising makes you want something
Prices of Related Goods
Demand can be affected by the change
in the price of another good
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Compliments – two goods that are bought
and used together
Substitutes goods used in place of one
another