The Nature of Demand n DemandThe amount of

The Nature of Demand n Demand—The amount of a good or service that a consumer is willing and able to buy at various possible prices during a given period of time. n Quantity Demanded—Amount consumer is willing and able to buy at each particular price during given time period.

Demand n Demand: 2 Important Conditions n Consumer must be willing to buy n Consumer must be able to buy n *Not only be willing to buy a good or service but be able to pay for it. n *Conditions change—Time can change the demand for a good or service.

The Law of Demand n An increase in a goods price causes a decrease in the quantity demanded and a decrease in price causes an increase in the quantity demanded. Price – Up Quantity Demanded –Down n Price –Down Quantity Demanded –Up n n Consumers like low prices. The lower the price, the more they are willing and able to buy!

Reasons for Downward Slope n Income Effect—Any increase or decrease in consumers purchasing power (funds available to spend on goods and services) caused by a change in price. n We have $30 to spend on video games: n Ex. Video game prices increase from $50 to $60 n Consumers: Because the price of video games goes up, the consumer is willing and able to buy less of them.

Substitution Effect n Substitution Effect—The tendency of consumers to substitute a similar, lower priced product for another product with a higher price. n Hamburger rises to $5. 00 per pound n Substitute chicken @ $3. 00 p/pound n The quantity demanded of hamburger decreases as price increases because consumers are willing and able to buy less hamburger. The reason…they are willing to substitute the cheaper chicken.

Diminishing Marginal Utility n Utility=Usefulness of a product or the amount of satisfaction an individual receives from a product. n Diminishing Marginal Utility—The more of a product that is consumed, the satisfaction from each additional unit declines. n Marginal: Means one additional unit At some point consumers cannot use any more of a product.

Demand Schedules n Demand Schedule—A way to show the relationship between the price of a good and the quantity that consumers demand. n The schedule shows the quantity of goods that consumers are willing and able to buy at a series of possible prices. n Inverse relationship Price $ Quantity Demanded $5. 00 $4. 00 $3. 00 1 2 3 $2. 00 $1. 00 4 5

Demand Curve—A graph that plots all the possible combinations of prices and quantities demanded. P 5 4 D 3 2 1 1 2 3 4 5 Q