CHAPTER 4 Demand 4 1 The Demand Curve

CHAPTER 4 Demand 4. 1 The Demand Curve 4. 2 Elasticity of Demand 4. 3 Changes in Demand

4. 1 THE DEMAND CURVE Learning Objectives LO 1 Explain the law of demand. LO 2 Interpret a demand schedule and a demand curve. 2 CHAPTER 4

Key Terms · · demand law of demand marginal utility law of diminishing marginal utility · · demand curve quantity demanded individual demand market demand 3 CHAPTER 4

Demand · Demand indicates how much of a product consumers are both willing and able to buy at each price during a given period, other things constant. https: //www. youtube. com/watch? v=Ng 3 XHPd ex. NM 4 CHAPTER 4

Determinants of Demand • What factors determine how much you will buy? • What factors determine how much you will really purchase? 1) 2) 3) 4) 5) 6) Product’s Own Price Consumer Income Prices of Related Goods Consumer Tastes Consumer Expectations Number of Consumers 5

Law of Demand · The law of demand says that quantity demanded varies inversely with price, other things constant. · The higher the price, the smaller the quantity demanded. 6 CHAPTER 4

Demand, Wants, and Needs · Consumer demand consumer wants are not the same thing · Wants are unlimited · Demand is not the same as a need · In both cases price helps you to determine consumer demand for the good or service that may satisfy the consumers want or need 7 CHAPTER 4

Substitution Effect · The change in the relative price of one good in relation to another similar goods will cause the substitution effect. · Laymen's terms · If I have 2 things that are very similar and one thing changes in price but the other remains at the same price, depend on how the price changes will influence whether I purchase more of one over the other 8 CHAPTER 4

Income Effect · Income effect – measures your real income in terms of how much it can purchase or your purchasing power · Lower prices increases your real income and thereby increases your ability to purchase more goods which increases the quantity demanded · Higher prices have the opposite effect. Your real income is reduced by a price increase, which lowers the quantity demanded 9 CHAPTER 4

Diminishing Marginal Utility · The satisfaction gained from the consumption of an additional unit of a good or service Law of Diminishing Marginal Utility · The more of a good an individual consumes the smaller the marginal utility of each additional unit consumed · Consumers make purchases to increase their satisfaction · Consumers will continue to make purchases until the price of the good or service is greater than the marginal benefit they will receive 10 CHAPTER 4

Demand Schedule § The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded. 11 CHAPTER 4

Demand Curve § The demand curve is a graph of the relationship between the price of a good and the quantity demanded. 12 CHAPTER 4

Market Demand for Pizza • Market demand is the sum of all individual demands at each possible price. • Graphically, individual demand curves are summed horizontally to obtain the market demand curve. 13 CHAPTER 4