Demand

Introduction to Demand

• In the United States, the forces of supply and

demand work together to set prices.

• Demand is the desire, willingness, and ability

to buy a good or service.

– Supply can refer to one individual consumer or

to the total demand of all consumers in the
market (market demand).

Open Ended

Based on that definition, what do you have a demand for?

Introduction to Demand

⚫ A demand schedule is a table that lists the

various quantities of a product or service
that someone is willing to buy over a range
of possible prices.

Price per Widget ($)

Quantity Demanded of
Widget per day

$5

2

$4

4

$3

6

$2

8

$1

10

Introduction to Demand

⚫ A demand schedule can be shown as

points on a graph.

⚫ The graph lists prices on the vertical axis

and quantities demanded on the
horizontal axis.

⚫ Each point on the graph shows how

many units of the product or service an
individual will buy at a particular price.

⚫ The demand curve is the line that

connects these points.

Multiple Choice

What do a demand schedule and graph show us?

• Depending on the price, how much people will demand for an item

• Depending on the item, how much people are willing to save their money

Introduction to Demand

⚫ The demand curve slopes downward.

⚫ This shows that people are normally willing

to buy less of a product at a high price and
more at a low price.

⚫ According to the law of demand, quantity

demanded and price move in opposite
directions.

Multiple Choice

The demand curve slopes...

• upwards

• downwards

Introduction to Demand
•
We buy products for their utility- the
pleasure, usefulness, or satisfaction they
give us.

•
What is your utility for the following
products? (Measure your utility by the
maximum amount you would be willing to
pay for this product)

•
Do we have the same utility for these goods?

Open Ended

How much are you willing to spend on these shoes?

Introduction to Demand

•
One reason the demand curve slopes
downward is due to diminish marginal
utility

–

The principle of diminishing marginal
utility says that our additional satisfaction
tends to go down as we consume more
and more units.

•
To make a buying decision, we consider
whether the satisfaction we expect to gain
is worth the money we must give up.

Changes in Demand
⚫ Change in the quantity demanded due to a

price change occurs ALONG the demand
curve

•An increase in the Price of
Widgets from $3 to $4 will
lead to a decrease in the
Quantity Demanded of
Widgets from 6 to 4.

Changes in Demand

• Demand Curves can also shift in response to

the following factors:

– Buyers (# of): changes in the number of

consumers

– Income: changes in consumers’ income

– Tastes: changes in preference or popularity of

product/ service

– Expectations: changes in what consumers expect

to happen in the future

– Related goods: compliments and substitutes

• BITER: factors that shift the demand curve

Multiple Select

What can affect the demand for a product?

• Number of buyers

• Income

• Taste

• Expectations

• Related Goods

Changes in Demand

• Prices of related goods affect on demand

– Substitute goods🡪 a substitute is a product that can

be used in the place of another.

• The price of the substitute good and demand for the

other good are directly related

– Complementary goods🡪 a compliment is a good

that goes well with another good.

• When goods are complements, there is an inverse

relationship between the price of one and the
demand for the other

• For example, Peanut Butter Jam Demand

Multiple Choice

Substitute goods: If the price of Coke goes up, what will happen to the demand for Pepsi?

• The demand for Pepsi will go up

• The demand for Pepsi will go down

Multiple Choice

Complimentary goods: If the price of peanut butter goes up, what will happen to the demand for jelly?

• The demand for jelly will go up

• The demand for jelly will go down

Changes in Demand

•Several factors will change
the demand for the good
(shift the entire demand
curve)

•As an example, suppose
consumer income
increases. The demand for
Widgets at all prices will
increase.

Changes in Demand

•As an example, suppose
Widgets become less
popular to own.

•Demand will also decrease
due to changes in factors
other than price.

Changes in Demand

Changes in any of the factors other than

pricecauses the demand curve to shift
either:

⚫ Decrease in Demand shifts to the Left (Less

demanded at each price)

OR

⚫ Increase in Demand shifts to the Right

(More demanded at each price)

Multiple Choice

When graphing demand, if the demand decreases (goes down), the line on the graph will shift

• left

• right

• up

• down

Multiple Choice

When graphing demand, if demand increases (goes up), the line will shift to the

• left

• right

• up

• down