3. D E F I N I T I O N
O F D E M A N D
• Being willing and
able to purchase
a good or service
at a particular
time and place at
a given price.
• Varies inversely
with price
!
4. T H E B U Y E R ’ S
T R A D E - O F F
• Think of this in terms of a
trade-off that all people do
in determining whether or
not to become a buyer:
• If I choose to buy, then I get
the benefit of what I
purchased at the cost of
what I could have purchased.
• We represent what you could
have purchased with a price.
!
5. L AW O F
D E M A N D
• As the price rises, the
quantity demanded falls
• Or, as the price falls, the
quantity demanded rises.
• Ceteris Paribus “All things
remaining constant.
• The demand curve
downward slope shows the
trade-off a buyer makes
6. W H Y T H E L AW W O R K S
• As the price of a good increases
people are more willing to substitute
other items. (Substitution Effect)
• People prefer lower costs if all things
are equal.
7. M A R G I N A L U T I L I T Y
• Think of the Demand curve like a Marginal Utility
curve:
• Buyers will continue to buy as long as the price they
pay is less than the benefit they receive.
• Typically buying a good/service provides
satisfaction/usefulness.
• However, as you continue to buy your satisfaction
declines. This decline is know as Diminishing
Marginal Utility
!
8.
9. S H I F T I N G
D E M A N D
• When candy is sold, buyers wish
to buy at as low a price as
possible
• If we find out that candy
enhances intellectual ability, we
might find more people buying
more stuff at a higher price: an
increase in demand.
• If we find out that candy is
poison, we would likely have the
opposite effect.
10. S H I F T I N G
D E M A N D
• We would also see more demand if
we allowed people to buy on IOU’s
• Remember the definition of
demand?
• Willing and Able to Buy
• If people increase their ability to
buy (having more money, can buy
on IOU’s) their demand goes up.
• If people increase their willingness
to buy (candy makes you smart)
their demand goes up also.
11. S H I F T I N G
D E M A N D
• Six factors cause a shift in
demand
• 1. Consumer Income
• 2. Future Expectations
• 3. Population of buyers
• 4. Consumer Tastes/Popularity
• 5. Price of Complementary
Goods
• 6. Price of Substitute Goods
12. P R I C E E L A S T I C I T Y
O F D E M A N D
• DEF: How consumers respond to a
change in price of a good/service.
• Change in cost (price) can result in
large changes to the Quantity
Demanded
• Inelastic Demand is a small
change in QD as a result of more
modest changes to price
13. C A U S E O F
E L A S T I C I T Y
• If you can switch to a substitute
this creates market competition
and can result in lower prices
• If an item is a large purchase
item purchases are often delayed
causing lower demand for them
• Necessity vs. Luxury = prioritizing
needs over wants affects
demand
• Time - Can it be a long term
purchase
