Demand

1
Demand
CHAPTER 3

• SECTION 1 Nature of Demand
• SECTION 2 Changes in Demand
• SECTION 3 Elasticity of Demand

2
Objectives
SECTION 1
Nature of Demand

• How does demand differ from the quantity
  demanded?
• What does the law of demand state?
• What do demand schedules and demand curves
  illustrate?

3
Difference between demand and the quantity
demanded
SECTION 1
Nature of Demand

• demandconsumer demand at various prices
• quantity demandedconsumer demand at each
  particular price

4
Law of demand
SECTION 1
Nature of Demand

• There is an inverse relationship between a
  products price and the quantity demanded.

5
What demand schedules and demand curves
illustrate
SECTION 1
Nature of Demand

• Demand schedules show in table format
• the quantity of products consumers are willing to
  buy at a series of possible prices
• the quantity of products consumers are able to
  buy at a series of possible prices
• Demand curves show in graph format
• the data listed in demand schedules
• the rate of change for demand at each price

6
Objectives
SECTION 2
Changes in Demand

• What does it mean for a products demand to
  shift?
• What factors can shift demand for a product?
• How do substitute goods differ from complementary
  goods?

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When a products demand shifts, different
quantities of a product are demanded at each and
every price.
SECTION 2
Changes in Demand
8
Determinants of product demand shifts
SECTION 2
Changes in Demand

• consumer tastes and preferences
• market size
• income
• prices of related goods
• consumer expectations

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Difference between substitute goods and
complementary goods
SECTION 2
Changes in Demand

• substitute goodsused to replace the purchase of
  similar goods when prices increase
• complementary goodscommonly used with other goods

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Objectives
SECTION 3
Elasticity of Demand

• What is demand elasticity?
• What is the difference between elastic and
  inelastic demand?
• How is demand elasticity measured?

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Demand elasticity reflects the extent to which
changes in a products price affect the quantity
demanded by consumers.
SECTION 3
Elasticity of Demand
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Difference between elastic and inelastic demand
SECTION 3
Elasticity of Demand

• elastic demandwhen a small change in a products
  price results in a significant change in the
  quantity demanded
• inelastic demandwhen a change in a products
  price has only a slight effect on the quantity
  demanded

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Demand elasticity is measured by using the
total-revenue test.
SECTION 3
Elasticity of Demand
14
CHAPTER 3
Wrap-Up

• 1. State the law of demand in your own words. Be
  sure to include how the income effect, the
  substitution effect, and diminishing marginal
  utility relate to the law of demand.
• 2. What causes movement along a demand curvein
  other words, a change in the quantity demanded?
  How does this movement differ from a shift in
  demand?

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CHAPTER 3
Wrap-Up

• 3. What is the difference between a complementary
  good and a substitute good? Give an example of
  each kind of good for each of these products ice
  cream, baseball game tickets, pencils.
• 4. Why is determining demand elasticity important
  to business owners? How can business owners
  measure demand elasticity?