What is Demand?

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Economics Unit 4, Lesson 1

Objectives1. Know the definition of demand.

2. Explain the three conditions for demand.

3. Describe and construct a demand schedule.

4. Construct a demand curve.

5. Explain the law of demand.

6. List and explain the three concepts that explain the law of demand.

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DEMAND – Definition

Amount of goods and services a consumer is willing and able to buy at various prices

in a given time period

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Conditions for Demand

In this definition, we see there are three conditions for demand.

1. Willingness or desire

2. Ability – Financial means

3. Given time period

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Are you willing to buya Maserati?

Do you want one?

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Are you able to buy

a Maserati?

We mean financial ability.

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Specific Time Period

• Will you buy a Maserati this year?

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All buyers generally behave the same way,

so we can make some generalities.

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When price increases . . .

quantity demanded decreases.

OR

When price decreases . . .

quantity demanded increases.

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This is called the law of demand!!!

It shows the inverse relationship between price & quantity

demanded.

P↑ QD↓

P↓ QD↑

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Demand Schedule

• Demand schedule – shows quantity demanded at various prices for one consumer

• Market Demand schedule – shows quantity demanded by all consumers in the market

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Price Quantity

0.501.001.502.002.50

300250200150100

Demand Schedule

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Demand Curve

• You see a demand curve slopes downward, from left to right, showing the inverse relationship between price and quantity demanded.

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P

Q

.50

300

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P

Q

.50

100 300

2.50

D1.00

2000

1.50

2.00

150 250

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Limitations of Demand Curve

• The demand curve is only accurate for one set of conditions. It only shows changes in price. If anything other than price changes then the demand curve will no longer be valid.

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Concepts That Explain the Law of Demand

(why the demand curve slopes downward)

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1. The Income Effect

The price of an item goes up or down, and it is as if your income has changed; causing the

quantity demanded to change.

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2. Substitution Effect

If the price of an item changes, especially if it goes up, a consumer will substitute another item

that is cheaper.

This causes the

quantity

demanded to

change.

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3. Diminishing Marginal Utility

As each additional unit of a good or service is consumed, the satisfaction received from

consuming that good decreases. For example, the first hamburger you eat is great

but the second is not as satisfying, so you would not be willing to pay as much for it.

The third brings even less satisfaction.

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