There are substitutes for EVERYTHING! The law of demand is dependent on the notion that for anything there is a substitute which will be used when the opportunity cost of a thing is high enough. Definitions: --Substitute: things are used in place of something else --Complement: things that are used together --Independent Goods: neither substitutes or complements
Demand Individual Demand Schedule—a table that lists the number of items demanded by one person at various prices Market Demand Schedule—a table that lists the number of items demanded by an entire market or group of people
Demand Individual Demand Curve—the graphic representation of the individual demand schedule Market Demand Curve—the graphic representation of the market demand schedule
Demand The demand curve is almost always downward sloping The vertical axis is always labeled PRICE The horizontal axis is always labeled QUANTITY
Demand Law of Demand—quantity demanded of a good and its price vary INVERSELY, ceteris paribus --ceteris paribus means that if all other factors are held constant, then as the price of the good rises, the quantity demanded of the good will fall
Demand Utility—a product’s use or how much satisfaction or use a person gets out of a product Can anyone think of why utility will affect demand? Why are we returning to utility?
Demand Marginal Utility—how much MORE a person will get out of adding ONE MORE unit of a product How much utility will you get from a glass of lemonade on a hot day? How much MORE utility will you get from a second glass? A 10th glass? A 50th glass? A 100th glass?
Demand Diminishing Marginal Utility—the satisfaction (or utility) obtained from consuming a good declines as more units of the good are consumed This is why demand curves slope downward.
Change in Quantity Demanded Abbreviated ΔQd Change in Qd is represented as a movement along the demand curve and results from a change in price
Change in Qd The only thing that will result in a Change in Qd is a change in price of the product we are talking about This is just a movement ALONG the curve that is already given—going from one point to another
Change in Demand Abbreviated ΔD Change in D—portrayed as a shift of the ENTIRE demand curve and it is caused when something changes the quantity of a product demanded at each price
Change in D This is when you get an entirely NEW curve, so each point has changed. Now people are demanding more or less of the product at each price. Can you think of anything that would do this? What would cause you to buy more or less CDs, even though the price of the CD stays the same?
Change in Demand Determinants of Demand—things that will cause a change in D --A change in the price of substitutes --A change in the price of complements --A change in consumer income --A change in population --A change in consumer tastes --A change in consumer expectations
Increases in Demand The entire demand curve shifts RIGHT. (Demand curves only shift RIGHT or LEFT, never UP or DOWN!) This is because at each given price there is now more quantity demanded. To show there is an increase in quantity, we move RIGHT because our quantity axis increases as we move further to the right.
Decreases in Demand The entire demand curve shifts LEFT. This is because at each given price there is now less quantity demanded. To show there is a decrease in the quantity, we move left because our quantity axis decreases as we move further to the left.
Demand Elasticity Demand elasticity is the extent to which a change in price causes a change in quantity demanded How much does price influence how much we buy of a product
Demand Elasticity Elastic Demand—when a given change in price causes a relatively larger change in Qd Inelastic Demand—when a given change in price causes a relatively smaller change in Qd Unit Elastic—when a given change in price causes a proportional change in Qd
Determinants of Demand Elasticity Can the purchase be delayed? --If yes, demand tends to be elastic --If no, demand tends to be inelastic Are adequate substitutes available? --If yes, demand is usually elastic --If no, demand is usually inelastic
Determinants of Demand Elasticity Does the purchase use a large portion of income? --If yes, demand tends to be elastic --If no, demand tends to be inelastic
Examples What is something that you would still buy, even if there was a drastic increase in price? What is something you would stop buying or limit your purchase of if there was just a small change in price?