Demand. Outline I. What is Demand? A. Demand Schedules B. The Law of Demand C. Demand Curves/Market...

DemandDemand

OutlineOutline

I. What is Demand?A. Demand SchedulesB. The Law of DemandC. Demand Curves/Market Demand

II. Change in Demand vs. Change in Quantity DemandedA. Change in DemandB. Change in Quantity Demanded

What is Demand?What is Demand?

As we discussed earlier - there is a limited amount of goods out there. So how do we decide what we want? The concept of demand captures this issue. Demand is made up of two elements:

– Desire for Goods and Services– Means to purchase those Goods and Services

Demand SchedulesDemand Schedules

• Lets consider how many CDs you might demand in a month. (This is called “Quantity Demanded”)

• We will first look at this information in a table called a “Demand Schedule”

• Demand Schedule - a table showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus. – ceteris paribus: means "assuming all else is held

constant". The attempt to distinguish an effect of one kind of change from any others.

Demand ScheduleDemand Schedule

Price of CDs ($) Quantity Demanded per month

Demand ScheduleDemand Schedule

P ($) Qd

$20 5

Demand ScheduleDemand Schedule

P ($) Qd

$20 5

$15 7

Demand ScheduleDemand Schedule

P ($) Qd

$20 5

$15 7

$10 15

Law of DemandLaw of Demand

• Law of Demand - the price of a product (or service) is inversely related to the quantity demanded, ceteris paribus.

Demand Schedules and CurvesDemand Schedules and Curves

• Another way of characterizing Demand instead of using a schedule is a Demand Curve.

• Demand Curve - a diagram showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus.

Demand CurveDemand Curve

Demand CurveDemand Curve

P($)

Qd per month

Note: ALWAYS label your axes!

Demand CurveDemand Curve

P($)

Qd per month

5

10

15

20

0 5 10 15

Demand CurveDemand Curve

P($)

Qd per month

5

10

15

20

0 5 10 15

A

Demand CurveDemand Curve

P($)

Qd per month

5

10

15

20

0 5 10 15

A

B

Demand CurveDemand Curve

P($)

Qd per month

5

10

15

20

0 5 10 15

A

B

C

Demand CurveDemand Curve

P($)

Qd per month

5

10

15

20

0 5 10 15

A

B

C

D

Market Demand CurveMarket Demand Curve

• The demand curve we just drew was the Demand for CDs by one person.

• Market Demand Curve - a curve showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus.Market demand curves are obtained by summing the demand curves of individual consumers.

Market Demand ScheduleMarket Demand Schedule

• Market Demand Schedule - a table showing the relationship between the price of a good and the total quantity demanded by all consumers in the market per period of time, ceteris paribus.

• Market demand schedules are obtained by summing the demand schedules of individual consumers.

Market Demand ScheduleMarket Demand Schedule

P($) Mary’sQd

5 3

10 2

15 1

Market Demand ScheduleMarket Demand Schedule

P($) Mary’sQd

John’sQd

5 3 12

10 2 8

15 1 3

Market Demand ScheduleMarket Demand Schedule

P($) Mary’sQd

John’sQd

Tom’sQd

5 3 12 7

10 2 8 5

15 1 3 4

Market Demand ScheduleMarket Demand Schedule

P($) Mary’sQd

John’sQd

Tom’sQd

MarketQd

5 3 12 7 22

10 2 8 5 15

15 1 3 4 8

Change in Demand vs. Change in Change in Demand vs. Change in Quantity DemandedQuantity Demanded

This is a very important distinction. In short - a change in demand is a shift in the WHOLE demand curve. People are willing to buy more (or less) at every price.

Change in D vs. Change in QChange in D vs. Change in Qdd

• Change in Demand - a change in the desire or means to purchase the good, thus there is a change in quantity demanded at EVERY price.

• Change in Demand - a shift of the demand curve• A demand curve is drawn under the assumption

of ceteris paribus.• When this assumption is relaxed, the entire demand curves

shifts

Change in D vs. Change in QChange in D vs. Change in Qdd

• Changes in Demand• Increase in demand - demand curve shifts to the

right• Decrease in demand - demand curve shifts to

the left

Change in Quantity DemandedChange in Quantity Demanded

• Change in Quantity Demanded (Qd) - movement along a demand curve• A change in quantity demanded can only be caused

by a change in the price of the good.

• Changes in Quantity Demanded• Increase in Qd - a movement to the right along a

demand curve

• Decrease in Qd - a movement to the left along a demand curve

Increase in DemandIncrease in Demand

Increase in DemandIncrease in Demand

P

Qd

Increase in DemandIncrease in Demand

P

Qd

D

Increase in DemandIncrease in Demand

P

Qd

D

Increase in DemandIncrease in Demand

P

Qd

D D’

Increase in QIncrease in Qdd

Increase in QIncrease in Qdd

P($)

Qd

Increase in QIncrease in Qdd

P($)

Qd

D

Increase in QIncrease in Qdd

P($)

Qd

D

A

Increase in QIncrease in Qdd

P($)

Qd

D

A

Increase in QIncrease in Qdd

P($)

Qd

D

A

B