The Basics of Demand The Basics of Demand

The Basics of Demand

The Basics of Demand l Economists study markets. – l A market is any place where people come together to buy and sell goods or services. “Demand” - the willingness AND ability of consumers to buy a good or service at a specific period of time – – Willingness: ready to buy a good or service Ability: having the means to buy the good or service

The Law of Demand l The quantity demanded varies inversely with price, other things constant (a. k. a. Price Effect) Price = Quantity demanded

How We Look at Demand -- The Demand Schedule and Curve l A schedule is a table that lists the quantity of a good that a person will purchase at each price. This is the STORY. l The vertical axis ALWAYS shows price l The horizontal axis ALWAYS shows quantity demanded l Plot the points on the schedule l Connect the dots!! l The Demand curve slopes Down. l Now you have created a PICTURE OF THE STORY. P D Q

What is the difference between demand quantity demanded? l Demand is a schedule (the story) or curve (the picture) that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time – l Example: Michael has a demand for ice cream. This means he has the willingness AND ability to buy ice cream. Quantity demanded refers to how many units will be demanded at a particular price. – Example: Suppose the price of ice cream is $3 per cone and Michael buys two. Therefore two ice cream cones is the quantity demanded at $3.

Movement Along a Demand Curve Versus a Shift of the Curve l Remember there is a difference between quantity demanded and demand. l Markets never stand still, there always outside factors that change the actual price of the good or how much is demanded altogether. l A change price creates a change in the quantity demanded, other things constant. – l This causes a movement along the demand curve. A change in one of the determinants of demand causes a change in demand. – This causes in a shift of a demand curve.

Change in Quantity Demanded Price Quantity

Practice Problem #1 What would happen to the demand of bottles of an energy drink if the prices doubled? Increase or decrease in quantity demanded (Qd)? l

Answer to Practice Problem #1 What would happen to the demand for energy drinks if the price doubled? l Decrease in quantity demanded

How would it look on the graph? Price (P) Quantity (Q)

How would it look on the graph? Price (P) Quantity (Q)

Practice Problem #2 What would happen to the demand of bottles of an energy drink if they went on sale so that price per bottle decreased? l Increase or decrease in quantity demanded (Qd)?

Practice Problem #2 What would happen to the demand of bottles of an energy drink if they went on sale so that price per bottle decreased? l Increase in quantity demanded (Qd)

How would it look on the graph? Price Quantity

How would it look on the graph? Price (P) A $1. 00 B $. 50 D 0 4 8 12 16 Quantity (Q)

Why do changes (Δ) in price cause movement along the demand curve? Price (P) Demand (D) Quantity (Q)