Chapter 4: Demand

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.11

CHAPTER 4

Demand

4.1 The Demand Curve

4.2 Elasticity of Demand

4.3 Changes in Demand

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.12

CHAPTER 4

Demand

Why are newspapers sold in vending machines that

allow you to take more than one copy?

How much do you eat when you can eat all you want?

What cures spring fever?

What economic principle is behind the saying, “Been

there, done that”?

Why do higher cigarette taxes cut smoking by

teenagers more than by other age groups?

Consider

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.13

LESSON 4.1

The Demand Curve

Explain the law of demand

Interpret a demand schedule and

demand curve

Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.14

LESSON 4.1

The Demand Curve

demand

law of demand

marginal utility

law of diminishing marginal utility

demand curve

quantity demanded

individual demand

market demand

Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.15

Demand

Demand indicates how much of a

product consumers are both willing and

able to buy at each possible price during

a given period, other things remaining

constant.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.16

Law of Demand

The law of demand says that quantity

demanded varies inversely with price,

other things constant. Thus, the higher

the price, the smaller the quantity

demanded.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.17

Law of Demand

Demand, wants, and needs

Substitution effect

Income effect

Diminishing marginal utility

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.18

Demand Schedule

and Demand Curve

Demand versus quantity demanded

Individual demand and market demand

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.19

Demand Schedule

Price Quantity Demanded

per Pizza per Week (millions)

a $15 8

b 12 14

c 9 20

d 6 26

e 3 32

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.110

8 14 20 26 32

Millions of pizzas per week

$15

12

9

6

3

0

Price

pe

r p

izza

Demand Curve for Pizzaa

b

c

d

e

D

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.111

$12

8

4

1

(c) Chris

$12

8

4

1 2

(b) Brianna

$12

8

4Price

1 2 3 Pizzas

(per week)

(a) Hector

Individual Demand for Pizzas

dH

dB

dC

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.112

$12

8

4Price

1 2 3 Pizzas

(per week)

(d) Market demand for pizzas

6

Market Demand for Pizzas

dH

dB

dC

D+ + =

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.213

LESSON 4.2

Elasticity of Demand

Compute the elasticity of demand, and

explain its relevance.

Discuss the factors that influence

elasticity of demand.

Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.214

LESSON 4.2

Elasticity of Demand

elasticity of demand

total revenue

Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.215

Computing the

Elasticity of Demand

Elasticity of demand measures the

percentage change in quantity demanded

divided by percentage change in price.

Elasticity

of demand=

Percentage change in

quantity demanded

Percentage

change in price

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.216

Computing the

Elasticity of Demand

Elasticity values

Elasticity and total revenue

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.217

8 14 20 26 32

Millions of pizzas per week

$15

12

9

6

3

0

Price

pe

r p

izza

The Demand for Pizza

D

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.218

Determinants of

Demand Elasticity

Availability of substitutes

Share of consumer’s budget spent

on the good

A matter of time

Some elasticity estimates

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.219

50 75 95100 Millions of gallons per day0

$1.25

1.00

Pric

e pe

r ga

llon Dy

D m

Dw

Demand Becomes

More Elastic Over Time

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.220

Selected

Elasticities of Demand

Product Short Run Long Run

Electricity (residential) 0.1 1.9

Air travel 0.1 2.4

Medical care and hospitalization 0.3 0.9

Gasoline 0.4 1.5

Movies 0.9 3.7

Natural gas (residential) 1.4 2.1

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.321

LESSON 4.3

Changes in Demand

Identify the determinants of demand,

and explain how a change in each will

affect the demand curve.

Distinguish between the money price of

a good and the time price of a good.

Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.322

LESSON 4.3

Changes in Demand

tastes

movement along a given demand curve

shift of a demand curve

Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.323

Changes That Can

Shift the Demand Curve

Changes in consumer income

Normal goods

Inferior goods

Changes in the prices of related goods

Substitutes

Complements

Changes in the size or composition of the population

Changes in consumer expectations

Changes in consumer tastes

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.324

Movement Along a Demand Curve

Versus a Shift of the Curve

A change in price, other things constant,

causes a movement along a demand

curve, changing the quantity demanded.

A change in one of the determinants of

demand other than price causes a shift of

a demand curve, changing demand.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.325

8 14 20 26 32Millions of pizzas per week

$15

12

9

6

3

0

Price p

er

piz

za

D

An Increase in the

Market Demand for Pizza

D'

fb

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.326

b

D

A Decrease in the

Market Demand for Pizza

8 14 20 26 32Millions of pizzas per week

$15

12

9

6

3

0

Price p

er

piz

za

j

D'

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.327

Extensions of

Demand Analysis

Role of time in demand

The cost of waiting in line