Demand Supply Chapters 4 5 and 6 Demand

Demand Supply Chapters 4, 5 and 6

Demand ■ demand is a schedule that shows the various amounts of a product consumers are WILLING and ABLE to BUY at each specific price at a specific time.

■ Demand Schedule: listing that shows the # demanded at different prices Demand Schedule for Donuts Quantity $2 Price 1 $1. 50 5 $1. 00 8 $. 75 12 $. 50 15

Law of Demand ■ There is an inverse relationship between P & Q demanded ▪ OR – If p ↓, D ↑ – If p ↑, D ↓

■ Substitution Effect: people tend to buy the lower priced good (assuming the same quality).

■ Marginal Utility: Extra satisfaction from getting one more unit of a product (+ demand) ■ Diminishing marginal utility: satisfaction starts to decrease with an additional purchase (- demand)

Demand Curve Always Downward sloping—indicating lower quantity demanded at higher prices, higher quantities at lower prices ■ Change in PRICE reflects movement along the curve = change in quantity demanded ■

■ If a change in demand is NOT caused by a change in PRICE, the entire curve will shift = change in demand = shift

Determinants that affect demand (other than price) Consumer tastes (popularity) ■ # of buyers ■ Income ■ Substitute or Complementary Goods ■ Expectations (new studies show, we think something will happen in the future) ■

Demand Schedule for Donuts Price Quantity 1 Quantity 2 $2 1 3 $1. 50 5 7 $1. 00 8 12 $. 75 12 20 $. 50 15 25 Demand has increased at every price $. 25 25 so the curve has 35 shifted to the right.