1 Demand SECTION 1: Nature of Demand SECTION 2: Changes in Demand SECTION 3: Elasticity of Demand CHAPTER 3.

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DemandDemandSECTION 1: Nature of Demand

SECTION 2: Changes in Demand

SECTION 3: Elasticity of Demand

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Objectives:Objectives:How does demand differ from the quantity

demanded?What does the law of demand state?What do demand schedules and demand

curves illustrate?

Nature of DemandNature of DemandSECTION 1

Difference between demand and the Difference between demand and the quantity demanded:quantity demanded:demand—consumer demand at various

pricesquantity demanded—consumer demand at

each particular price

Nature of DemandNature of DemandSECTION 1

Law of demand:Law of demand:There is an inverse relationship between a

product’s price and the quantity demanded.

Nature of DemandNature of DemandSECTION 1

What demand schedules and demand What demand schedules and demand curves illustrate:curves illustrate: 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

Nature of DemandNature of DemandSECTION 1

Objectives:Objectives:What does it mean for a product’s demand to

shift?What factors can shift demand for a

product?How do substitute goods differ from

complementary goods?

Changes in DemandChanges in DemandSECTION 2

When a productWhen a product’’s demand shifts, s demand shifts, different quantities of a product are different quantities of a product are demanded at each and every price.demanded at each and every price.

Changes in DemandChanges in DemandSECTION 2

Determinants of product demand Determinants of product demand shifts:shifts:consumer tastes and preferencesmarket size incomeprices of related goodsconsumer expectations

Changes in DemandChanges in DemandSECTION 2

Difference between substitute goods Difference between substitute goods and complementary goods:and complementary goods: substitute goods—used to replace the

purchase of similar goods when prices increase

complementary goods—commonly used with other goods

Changes in DemandChanges in DemandSECTION 2

Objectives:Objectives:What is demand elasticity?What is the difference between elastic and

inelastic demand?How is demand elasticity measured?

Elasticity ofElasticity of DemandDemandSECTION 3

Demand elasticityDemand elasticity reflects the extent reflects the extent to which changes in a productto which changes in a product ’’s price s price affect the quantity demanded by affect the quantity demanded by consumers. consumers.

Elasticity ofElasticity of DemandDemandSECTION 3

Difference between elastic and Difference between elastic and inelastic demand:inelastic demand:elastic demand—when a small change in a

product’s price results in a significant change in the quantity demanded

inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded

Elasticity ofElasticity of DemandDemandSECTION 3

Demand elasticity is measured by Demand elasticity is measured by using the total-revenue test.using the total-revenue test.

Elasticity ofElasticity of DemandDemandSECTION 3

1.1. 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.

2.2. What causes movement along a demand curve—in other words, a change in the quantity demanded? How does this movement differ from a shift in demand?

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3.3. 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.

4.4. Why is determining demand elasticity important to business owners? How can business owners measure demand elasticity?

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