Transcript Quantity Demanded

Chapter 3
Demand

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
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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.
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What is the difference
between D and QD?
D measures W + A at
various prices.
QD measures W + A at
one (particular) price.
The Law of Demand
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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.
This is an inverse
(opposite) relationship.
Demand Schedule

Illustrates the relationship
between the price of a good or
service and the quantity
demanded for the good or
service.
 Shows the law of demand.
Price Per Car
Quantity Demanded
$10,000
1000
$8,000
1200
$6,000
1500
$4,000
3000
$2,000
5000
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A demand graph is a graphic illustration of the demand
schedule.
A demand curve plots the information from the demand
schedule on to the demand graph.
Each plotted point on the graph represents a specific
combination of price and quantity demanded.
The demand curve slopes downward, right.
10,000
8,000
P
Price Per Car
Quantity
Demanded
$10,000
1000
$8,000
1200
$6,000
1500
$4,000
3000
$2,000
5000
6,000
4,000
2,000
D
0
1,000 1,200 1,500 3,000
QD
5,000
Examples of the Law of Demand
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.
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The Substitution Effect
Substitute goods - Goods
that can be used in place of
one another.
Consumers tend to
substitute a similar, lowerpriced good for another
good that is higher-priced.
The substitution effect may
not always apply.
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Diminishing Marginal Utility
Utility - Usefulness or satisfaction gained from the
consumption of a good or service.
With each additional unit of consumption of a good
or service, less satisfaction from each unit of
consumption will be received.
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Demand will decrease because at some point,
consumers cannot use any more of a good or
service.
Demand Shifts
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With the passage of time, factors other than price
(non-price factors) can affect demand for a good or
service.
The result of non-price factors affecting demand is
that the entire demand curve shifts either to the right
or to the left.
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This means that quantity demanded changed at
every price.
P
Q
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An INCREASE in
demand shifts the
entire demand curve
to the RIGHT.
A DECREASE in
demand shifts the
entire demand curve
to the LEFT
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There are five non-price factors which determine
demand for a good or service:
1. Consumer Taste and Preference
2. Market Size
3. Income
4. Prices of Related Goods
5. Consumer Expectations

Consumers’ taste
and preference for
comfort, quality,
trends, holidays,
seasons, etc. can
have an effect on
demand
Market Size
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Changes in the size of the
market can have an effect on
demand.
Three factors can change
market size:
1.
Decisions made by
private businesses
2.
Government policies
3.
New technology
Income
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Changes in
consumers’ income
can have an effect on
demand.
Prices of Related Goods
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The demand for a good or
service can be affected by
the prices of related goods
Two types of related goods:
1.
Substitute goods are
goods that can be used to
replace a similar good
2.
Complementary goods
are goods that are usually
used together
Consumer Expectations
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Expectations of
one’s future income
can have an effect
on demand.
Elasticity of Demand
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The degree to which changes in good’s price affect the quantity
demanded by consumers.
Exist when small change in a good’s price causes a major,
opposite change in quantity demanded
 Can change if:
 The product is not a necessity
 There are readily available substitutes
 The product’s cost represents a large portion of
consumer’s income
Inelastic Demand
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Exist when a change in a good’s price has little impact on the
quantity demanded
Can change if
 The product is a necessity
 There are few or no readily available substitutes for the
product
 Product cost represents a small portion of consumers
income
Measuring Elasticity
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Total-revenue test – refers to the total income a
business receives from selling its products.
 Monitoring changes in prices before & after –
determines elasticity of demand for a product.
Prices can make inelastic or elastic