Economics Unit 4, Lesson 1
What is Demand?
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Objectives
1.
2.
3.
4.
5.
6.
Know the definition of demand.
Explain the three conditions for demand.
Describe and construct a demand schedule.
Construct a demand curve.
Explain the law of demand.
List and explain the three concepts that explain
the law of demand.
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DEMAND – Definition
Amount of goods and services a consumer
is willing and able to buy at various prices
in a given time period
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Conditions for Demand
In this definition, we see there are three
conditions for demand.
1. Willingness or desire
2. Ability – Financial means
3. Given time period
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Are you willing to buy
an expensive sports car?
Do you want one?
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Are you able to buy
a Maserati?
We mean financial ability.
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Specific Time Period
• Will you buy a Maserati this year?
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All buyers generally behave the
same way,
so we can make some generalities.
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When price increases . . .
quantity demanded decreases.
OR
When price decreases . . .
quantity demanded increases.
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This is called the law of
demand!!!
It shows the inverse relationship
between price & quantity
demanded.
P↑ QD↓
P↓ QD↑
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Demand Schedule
• Demand schedule – shows quantity
demanded at various prices for one
consumer
• Market Demand schedule – shows
quantity demanded by all consumers in
the market
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Demand Schedule
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Price
Quantity
0.50
1.00
1.50
2.00
2.50
300
250
200
150
100
Demand Curve
• You see a demand curve slopes
downward, from left to right, showing the
inverse relationship between price and
quantity demanded.
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P
.50
300
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Q
P
2.50
2.00
1.50
1.00
D
.50
0
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100
150 200
250
300
Q
Limitations of Demand Curve
• The demand curve is only accurate for
one set of conditions. It only shows
changes in price. If anything other than
price changes then the demand curve will
no longer be valid.
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Concepts That Explain the
Law of Demand
(why the demand curve slopes
downward)
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1. The Income Effect
The price of an item goes up or down, and it
is as if your income has changed; causing the
quantity demanded to change.
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2. Substitution Effect
If the price of an item changes, especially if it
goes up, a consumer will substitute another item
that is cheaper.
This causes the
quantity
demanded to
change.
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3. Diminishing Marginal Utility
As each additional unit of a good or service is
consumed, the satisfaction received from
consuming that good decreases. For
example, the first hamburger you eat is great
but the second is not as satisfying, so you
would not be willing to pay as much for it.
The third brings even less satisfaction.
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