In microeconomics, supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium for price and quantity.

1. Demand

2. Jump Start Chapter 4 section 1
1. The Law of Demand states that
A. More will be purchased at low prices than at high ones
B. Less will be purchased at low prices than at high ones
C. Approximately the same amount will be purchased at low prices than at higher prices
D. All people have the ability, and willingness to buy
2. The demand curve is always
A. Upward sloping
B. Downward sloping
C. Level
D. Irregular
3. Buying only one instead of two sodas at lunch time describes what concept?
A. Demand
B. Consumerism
C. Marginal utility
D. Diminishing marginal utility
4. All of the following must exist for there to be demand EXCEPT:
A. A desire to buy a product
B. Producers to sell a product
C. An ability to buy a product
D. A willingness to buy a product
5. Which of the following statements does NOT describe the demand curve?
A. Prices are listed on the vertical axis
B. Quantities demanded are listed on the horizontal axis
C. The demand curve represents the various combinations of process and quantities demanded
that could occur in the market
D. It shows that demand for a product over time rather than at a given point in time

3. Microeconomics
• Area that deals with
– Behavior and decision making by small units
(individuals and firms)
– Collectively- these concepts help explain
• How prices are determined
• How individual economic decisions are made

4. What is Demand?

5. Demand
• Desire, ability, and willingness to buy a
product
• Can compete with others who have similar
demands
• Microeconomic concept
• People and Firms act in best interest to
answer
– WHAT, HOW, and FOR WHOM

6. Demand Illustrated: Example
• Bicycle Shop
– Ask: Where the demand is?
• Set up where have a lot of bicycle riders and few
shops
– Ask? How do you measure demand?
• Visit other shops to gauge reactions of consumers
• Poll consumers (prices, determine demand)
• Study past data
– Gives you idea of desire, willingness, and
ability for people to pay

7. Individual Demand Schedule
Figure 4.1
The Demand for Compact Discs
Figure 4.1
The Demand for Compact Discs• A listing that shows
various quantities of
demanded of a
particular product at
all prices
• How much would you
be willing and able to
purchase over a
range of possible
prices?

8. Demand Curve
• Individual demand
curve illustrates how
the quantity that a
person will demand
varies depending on
the price of a good or
service
– Increase in demand =
curve will shift right
– Decrease in demand=
curve will shift left
Figure 4.1
The Demand for Compact Discs
Figure 4.1
The Demand for Compact Discs

9. Demand Schedule illustrated in a
Demand Curve
Figure 4.1
The Demand for Compact Discs
Figure 4.1
The Demand for Compact Discs
Figure 4.1
The Demand for Compact Discs
Figure 4.1
The Demand for Compact Discs

10. The Law of Demand
• States that the quantity demanded of a
good or service varies according to price
– Price goes up = quantity demand goes down
– Price goes down = quantity demanded goes
up

11. Foundations for the Law of
Demand
• Two reasons for calling it a LAW
– Inverse relationship between price and
quantity demanded
– Common sense and simple observation
• People do buy more of a product at a
LOW price
• People buy LESS when the product is at a
HIGH price

12. Market Demand Curve
• Demand curve that shows quantities
demanded by everyone who is interested
in buying the product.

13. Figure 4.2
Individual and Market Demand Curves
Figure 4.2
Individual and Market Demand Curves
Market Demand Curve

14. Demand and Marginal Utility
• Reminder: Utility –
– used to describe the amount of usefulness or
satisfaction that someone get from the use of
a product
• Marginal utility:
– the extra usefulness or satisfaction a person
gets from acquiring or using one or more unit
of a product

15. • Diminishing marginal utility
– The extra satisfaction we get from using
additional quantities of the product begins to
diminish
– Not willing to pay as much for 2nd
, 3rd
, or 4th
as
we did the first
– Why Demand curve is DOWNWARD sloping
• Marginal utility < the price = STOP buying
Demand and Marginal Utility

16. Chapter 4 Section 1 Vocabulary
A. Microeconomics
B. Demand curve
C. Demand
D. Marginal utility
E. Diminishing marginal
utility
1. Graph showing the quantity
demanded at each and every
price at a given time
2. The decrease in satisfaction or
usefulness received from each
additional unit of a product
3. The desire, ability, and
willingness to buy a product
4. Area of economics that deals
with behavior and decision
making of small units
5. The extra usefulness or
satisfaction a person gets from
acquiring or using one more
unit of product

17. Jump Start Chapter 4 section 1
1. The Law of Demand states that
A. More will be purchased at low prices than at high ones
B. Less will be purchased at low prices than at high ones
C. Approximately the same amount will be purchased at low prices than at higher prices
D. All people have the ability, and willingness to buy
2. The demand curve is always
A. Upward sloping
B. Downward sloping
C. Level
D. Irregular
3. Buying only one instead of two sodas at lunch time describes what concept?
A. Demand
B. Consumerism
C. Marginal utility
D. Diminishing marginal utility
4. All of the following must exist for there to be demand EXCEPT:
A. A desire to buy a product
B. Producers to sell a product
C. An ability to buy a product
D. A willingness to buy a product
5. Which of the following statements does NOT describe the demand curve?
A. Prices are listed on the vertical axis
B. Quantities demanded are listed on the horizontal axis
C. The demand curve represents the various combinations of process and quantities demanded
that could occur in the market
D. It shows that demand for a product over time rather than at a given point in time

18. Factors Affecting Demand

19. Jump Start Chapter 4 section 2
1. Which of the following would cause a change in quantity demanded for a
product?
A. Changing consumer taste
B. Increasing consumer income
C. Decreasing the price of the product
D. Changing prices of related products
2. How does the demand curve respond to an increase in demand?
A. The curve shifts left
B. The curve shifts right
C. There is movement along the curve
D. There is no change in the curve
3. All of the following would cause a change in demand of a product EXCEPT?
A. A decrease in consumer income
B. The substitution effect
C. Changing consumer taste
D. An increase in the price of related products
4. All of the following are examples of complements EXCEPT:
A. Butter and margarine
B. Flashlights and batteries
C. Peanut butter and jelly
D. Cameras and film
5. A change in the number of consumers can cause
A. The demand curve to shift
B. A substitution effect
C. The market demand curve to shift
D. Prices to fall

20. Change in Quantity Demanded
• Change in the amount of a product
purchased when there is a change in price
• Income Effect
– As prices drop, consumers are left with extra
real income
• Substitution Effect
– Price can cause consumers to substitute one
product with another similar cheaper item

21. Figure 4.3
A Change in Quantity Demanded
Figure 4.3
A Change in Quantity Demanded
Change in Quantity Demanded
When there is a change in quantity demanded
the change appears along the curve

22. Change in Demand
• People buy different amounts of the
product at the same prices
• Change in demand results in a new curve
– Right = increase
– Left = decrease
• Why Change?
– Income, taste, the price of a related good,
expectations, and the number of consumers

23. Change in Demand
Figure 4.4
A Change in Demand
Figure 4.4
A Change in Demand

24. Changes Happen
• Income:
– Up = afford to buy more goods and services
• Demand curve shifts to right
– Down = cause them to buy less of the good at
each and every price
• Demand curve shifts to the left
• Taste
– Advertising, news reports, fashion trends, the
introduction of new products, changes in
seasons

25. Changes Happen
• Substitutes:
– Competing products that
can be used in place of
one another
– An increase in the price of
one increases the demand
for the other
– Ex: Butter and
Margarine
• Complements:
• Products that increase
the value of other
products
• An increase in the price
of one reduces the
demand for both
• An increase in the use of
one will increase the use
of the other
• Ex: film and camera

26. • Expectations
– Way you think about the future
• New technologies of tomorrow
• Number of Consumers
– Increase in number of consumers causes the
demand curve to shift
– Decrease = shift in demand curve
• Also shifts the market demand curve to the left =
decline in market demand when anyone leaves the
market
Changes Happen

27. Change in Demand v. Quantity Demanded
• People buy different
amounts at the same
price
• Shows a move from
one curve to the other
• Affected by price
• Move along the same
curve

28. Chapter 4 section 2 Vocabulary
A. Change in quantity
demanded
B. Income effect
C. Substitution effect
D. Substitutes
E. Complements
1. Change in quantity
demanded due to change in
price that alters a consumers
real income
2. Illustrated by movement
along the demand curve
3. Products that tend to be used
together
4. A change in quantity
demanded due to change in
the relative price of a product
5. Products that can be used in
place of other products

29. Jump Start Chapter 4 section 2
1. Which of the following would cause a change in quantity demanded for a
product?
A. Changing consumer taste
B. Increasing consumer income
C. Decreasing the price of the product
D. Changing prices of related products
2. How does the demand curve respond to an increase in demand?
A. The curve shifts left
B. The curve shifts right
C. There is movement along the curve
D. There is no change in the curve
3. All of the following would cause a change in demand of a product EXCEPT?
A. A decrease in consumer income
B. The substitution effect
C. Changing consumer taste
D. An increase in the price of related products
4. All of the following are examples of complements EXCEPT:
A. Butter and margarine
B. Flashlights and batteries
C. Peanut butter and jelly
D. Cameras and film
5. A change in the number of consumers can cause
A. The demand curve to shift
B. A substitution effect
C. The market demand curve to shift
D. Prices to fall

30. Elasticity of Demand

31. Jump Start Chapter 4 section 3
1. Total expenditures are determined by
A. multiplying the price of a product by the quantity demanded
B. measuring the elasticity of a product
C. dividing the price of the product by demand
D. dividing the demand doe the product by its price
2. The relationship between the change in price and total expenditures for an elastic
demand curve is
A. Variable
B. Unit elastic
C. Inverse
D. Direct
3. All of the following are determinants of demand elasticity EXCEPT:
A. Whether the purchase of the product can be delayed
B. Whether there are adequate substitutes for the product
C. Whether the purchase of the product requires a large portion of income
D. Whether the product has utility
4. A company decreases the price of a gallon of milk by 10 percent and the company’s
total revenues fall significantly. What term best describes the demand for milk?
A. Elastic
B. Inelastic
C. Unit elastic
D. Demand elastic
5. All of the following products have relatively inelastic demand EXCEPT:
A. A physician’s services
B. Tobacco products
C. Stereo equipment
D. Prescription drugs

32. Demand Elasticity
• Elasticity: measure how sensitive
consumers are to price change
• Demand Elasticity: the extent to which
change in price causes a change in
quantity change
• Because some goods and services are
affected by price more than others, we
classify demand as either elastic or
inelastic.

33. Demand Elasticity
Elastic
• Small price changes
can make big
changes in demand
• Amount bought will go
up when price goes
down
• You can wait to buy
Inelastic
• Price changes don’t
affect demand
• Lower price will NOT
affect the amount
bought
• You can’t wait to buy

34. • Unit elastic: when a change in price
cause a proportional change in demand
– Percent change in quantity approx. = percent
in price
– i.e.: 5% drop in price approx. = 5% increase
in quantity demanded
Demand Elasticity

35. The Total Expenditures Test
• TET: the amount that consumers spend
on a product at a particular price

36. Figure 4.5
The Total Expenditures Test for Demand Elasticity
Figure 4.5
The Total Expenditures Test for Demand Elasticity

37. Demand is elastic if you answer
YES to the following questions:
• Can the purchase be delayed?
– Yes = elastic
– No = inelastic
• Are adequate substitutes available?
– Yes = elastic
– No = inelastic
• Does the purchase use a large portion of your
income?
– Yes = elastic (Ex: car)
– No = inelastic (Ex: salt)

38. Vocabulary Chapter 4 section 3
A. Elasticity
B. Demand elasticity
C. Elastic
D. Unit elastic
E. Inelastic
1. The extent to which a change in price
causes a change in the quantity
demanded
2. Describes demand when a given change
in price causes a relatively smaller
change in the quantity demanded
3. Describes demand when a given change
in price causes a proportional change in
the quantity demanded
4. A measure of responsiveness that
shows how a dependent variable such
as quantity responds to an independent
variable such as price
5. Describes demand when a given change
in price causes a relatively larger change
in the quantity demanded

39. Jump Start Chapter 4 section 3
1. Total expenditures are determined by
A. multiplying the price of a product by the quantity demanded
B. measuring the elasticity of a product
C. dividing the price of the product by demand
D. dividing the demand doe the product by its price
2. The relationship between the change in price and total expenditures for an elastic
demand curve is
A. Variable
B. Unit elastic
C. Inverse
D. Direct
3. All of the following are determinants of demand elasticity EXCEPT:
A. Whether the purchase of the product can be delayed
B. Whether there are adequate substitutes for the product
C. Whether the purchase of the product requires a large portion of income
D. Whether the product has utility
4. A company decreases the price of a gallon of milk by 10 percent and the company’s
total revenues fall significantly. What term best describes the demand for milk?
A. Elastic
B. Inelastic
C. Unit elastic
D. Demand elastic
5. All of the following products have relatively inelastic demand EXCEPT:
A. A physician’s services
B. Tobacco products
C. Stereo equipment
D. Prescription drugs