9/14/15

• Topic: Demand• EQ: How and why does demand change?•Bellwork: Set up your Cornell notes, then answer the

following at the top of your notes and be prepared to share:•What are 5 goods or services you paid for recently? How

much did you pay for them? What made you decide to spend the money on them?

Understanding Demand

Demand

• Demand is the desire to own something and the ability to pay for it• The Law of Demand says that consumers buy more of a good

when its price decreases, and less when its price increases• The substitution effect is when consumers react to an

increase in a good’s price by consuming less of that good and more of other goods• The income effect describes the change in consumption

resulting from a change in real income

Demand Schedules

• A demand schedule is a table that lists the quantity of a good a person will buy at each different price• A market demand schedule shows the quantities demanded at each

price by all consumers in the marketIndividual Demand Schedule Market Demand SchedulePrice of a slice of pizza Quantity demanded per day Price of a slice of pizza Quantity demanded per day

$1.00 4 $1.00 250$1.50 3 $1.50 200$2.00 2 $2.00 150$2.50 1 $2.50 100$3.00 0 $3.00 50

Demand Graphs

• The demand curve is a graphic representation of a demand schedule• The demand curve is created by creating plot points from the

data in the demand schedule. • Price is always on the Y-axis• Quantity demanded is always on the X-axis

0 1 2 3 4 5$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Individual Demand for Pizza Individual Demand Schedule

Price of a slice of pizza

Quantity demanded per day

$1.00 4

$1.50 3

$2.00 2

$2.50 1

$3.00 0Demand (D)

Changes in Demand

• Ceteris paribus is a Latin phrase for “all other things held constant”• A change in quantity demanded means that consumers are

buying more or less of a good or service• Change in quantity is always because of price, and only price• Change in quantity demanded is represented by movement

along the demand curve.

0 1 2 3 4 5$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Individual Demand for Pizza

Changes in Demand

• When we allow other factors to change, we see a change in demand• A change in demand is when the entire curve shifts left or right• A shift of the curve to the right means an increase in demand• A shift of the curve to the left means a decrease in demand• A change in demand can be caused by five shifters:• Income• Consumer Expectations• Population• Consumer Tastes• Related Goods

Curve Shifters

• If a person’s income increases or decreases, the curve will move left or right because they will demand more or less at every price• Most items are normal goods; consumers demand more when their

incomes increase• The curve shifts to the right when income increases, and left when income

decreases

• Inferior goods are goods that consumers demand less of when their incomes increase• The curve shifts to the right when income decreases, and left when income

increases

Curve Shifters

• If consumers think the price will go up or down, it will influence their immediate demand• If consumers expect prices to rise, they will buy sooner, causing

immediate demand to increase (shift right)• If consumers expect prices to decrease, they will put off a purchase,

causing immediate demand to decrease (shift left)• Population can affect demand, by increases or decreases in

population, or a change in the demographics of a population

Curve Shifters

• Changes in consumer tastes or preferences, and advertising, can affect the demand for a product• Complements are two goods that are usually bought and used

together• Substitutes are goods used in place of one another

0 1 2 3 4 5$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Individual Demand for Pizza

DD1

D2

Decrease in

Demand

Increase in

Demand

Review time!

Practice time!

• Think of something you would demand right now—something that you have the desire for AND the ability to pay for (no Ferraris)• Create an individual demand schedule on your paper for this product• Plot your data points on the graph• Follow the directions on #1-4 at the bottom of the page