Law of Demand

DEMAND

UNIT 4, SECTION 1

Behold! The AMC Gremlin X

Fundamental Terms

•Product = a good or service
•Price = the monetary value of a product

MACROECONOMICS

The part of economic theory
that focuses on the economy
as a whole & decision making
by large units, such as
governments

MICROECONOMICS

The part of economic theory that
deals with behavior & decision
making by small units, such as
individuals & businesses

MACRO vs. MICRO

DEMAND

The various amounts of a product that someone is
willing and able to buy over a range of possible
prices at one point in time

DEMAND

Demand:
• refers to the entire relationship
between prices and the quantity of
this product that people want at
each of these prices.
• should be thought of as "the
demand curve."

Change in DEMAND

•Represented by a shift in
the demand curve (or
schedule) itself
•Caused when the demand
for a product changes
even though the price of
the product does not

If Demand increases, the demand curve
(or schedule) shifts to the right →

If Demand decreases, the demand (or
schedule) curve shifts to the left ←

REMEMBER!

When we are discussing
DEMAND, we are considering
the DEMANDof a particular
product!

The LAW of DEMAND

The quantity demanded for any product is inversely

proportional to the price of the product

Law of Demand Example

Price

Quantity
Demanded

$3.00

0

$2.50

1

$2.00

2

$1.50

3

$1.00

4

Another Law of
Demand
Example

What is QUANTITY DEMANDED?

Quantity demanded:
• refers to one particular point on
the demand curve (not the entire
curve).
• refers to how much of the
product is demanded at one
particular price.

Change in Quantity Demanded

•Represented by movement along the curve, not
movement of the curve itself
•Caused by 1 thing only – a change in price of the
product

Unit 4 Sec 1A Google Quiz

What can cause Demand to change?

1) Consumer income
- as income ↑, demand ↑
- as income↓, demand ↓

What can cause Demand to change?

2) Consumer tastes – influenced by:
- advertising
- fashion trends
- peer group pressure
- changes in seasons

What can cause Demand to change?

3) Change in price or the availability of a
substitute product
- demand ↑ if substitute’s price ↑ or substitute’s
availability ↓
- substitute = a product that can be used in
place of another product

What can cause Demand to change?

4) Change in price or the availability of a complementary
product
- demand ↑ if complement’s price ↓ or complement’s
availability ↑
- complement = a product whose use is tied to the use of
another product

What can cause Demand to change?

5) Expectations of
consumers – driven by
preconceived ideas about
particular products

What can cause Demand to change?

6) Number of consumers
- demand ↑ as more consumers
enter the market

Two Final Concepts Related to Demand

● 1) Marginal Utility– Satisfaction or usefulness of

consumer acquiring 1 more of a product

What companies have built their business on Marginal Utility?

Two Final Concepts Related to Demand

● Marginal Utility–think Sam’s or Costco

Two Final Concepts Related to Demand

● Diminishing Marginal Utility– the DECREASE in

satisfaction or usefulness as additional units are
acquired.

Two Final Concepts Related to Demand

● Diminished Marginal Utility–

The PROBLEM with Sam’s Club
or Costco. . .

Write an “QD” by the factor that causes a
change in quantitydemanded (Hint:
there is only 1). Write a “DC” by the
factors that cause a change in demand
(and the entire demand curve)itself.

1. consumer income
2. price of the product itself
3. consumer taste
4. number of consumers
5. availability of a substitute product

Write an “QD” by the factor that
causes a change in quantity
demanded (Hint: there is only 1).
Write a “DC” by the factors that
cause a change in demand (and the
entire demand curve)itself.

1. consumer income: DC

Write an “QD” by the factor that
causes a change in quantity
demanded (Hint: there is only 1).
Write a “DC” by the factors that
cause a change in demand (and the
entire demand curve)itself.

1. consumer income: DC
2. price of the product itself: QD

Write an “QD” by the factor that
causes a change in quantity
demanded (Hint: there is only 1).
Write a “DC” by the factors that
cause a change in demand (and the
entire demand curve)itself.

1. consumer income: DC
2. price of the product itself: QD
3. consumer taste: DC

Write an “QD” by the factor that
causes a change in quantity
demanded (Hint: there is only 1).
Write a “DC” by the factors that
cause a change in demand (and the
entire demand curve)itself.

1. consumer income: DC
2. price of the product itself: QD
3. consumer taste: DC
4. number of consumers: DC

Write an “QD” by the factor that causes a
change in quantitydemanded (Hint:
there is only 1). Write a “DC” by the
factors that cause a change in demand
(and the entire demand curve)itself.

1. consumer income: DC
2. price of the product itself: QD
3. consumer taste: DC
4. number of consumers: DC
5. Availability of a substitute product:
DC