Demand

What Is Demand?

Demand – the desire, ability, and willingness to buy a product

Microeconomics – the area of economics that deals with behavior and decision-making by small units, such as individuals and firms

Collectively, concepts of microeconomics help explain how prices are determined and individual economic decisions are made

What Is Demand?

In a market economy, people and firms act in their own best interests to answer our three questions of production:1. What2. How3. For whom?

Demand is necessary for both economists and businesses. The question is, how do consumers react to prices?

At a low enough price, almost anything is attractive as a product Almost

Individual Demand Schedules

Amount of a product that a given consumer would be willing and able to purchase over a range of possible prices

If someone wants something, but is unable to afford it, that person’s desire does not translate to demand

This is why, given a low enough price, people will even buy a copy of Paul Blart: Mall Cop

Individual Demand Curves

Simply a way of showing the information from a demand schedule in a different way

Demand Curve – graph showing quantity demanded at each and every price that might prevail in the market

Law of Demand – quantity demanded of a good or service varies inversely with its price

Price goes up – quantity goes down

Market Demand Curve

Market Demand Curve – sum of the individual demand curves for a given product

This is what most people think of when they think of a demand curve – it includes everyone, which is really what you would like to know as a business

Demand and Marginal Utility

utility – the amount of usefulness or satisfaction that someone gets from the use of a product

marginal utility – the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product

diminishing marginal utility – the extra satisfaction we get from using additional quantities of the product begins to diminish

Diminishing marginal utility is why our demand curve is downward-sloping

Factors Affecting Demand

Change in quantity demanded – movement along the demand curve that shows a change in the quantity of the product purchased in response to a change in price

The curve does not move – we are simply moving to a new point along the already existing curve

The Income Effect – the change in quantity demanded because of a change in price that alters consumers’ real income

The Substitution Effect – the change in quantity demanded because of the change in the relative price of a product

Change in DemandChange in demand – when the demand curve itself shifts

This means that people are now willing to by different amounts of the product at the same prices

• Changes in demand can occur due to a number of reasons:

• Change in consumer income• Change in consumer taste• Change in the price of related

products (also known as substitutes)

• Complements – use of one increases the use of others (think computers and software)

• Change in expectations• Change in the number of

consumers