CHAPTER 3

Demand
SECTION 1: Nature of Demand SECTION 2: Changes in Demand SECTION 3: Elasticity of Demand

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SECTION 1

Nature of Demand

Objectives:
 How does demand differ from the quantity demanded?  What does the law of demand state?  What do demand schedules and demand curves illustrate?

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SECTION 1

Nature of Demand

Difference between demand and the quantity demanded:
 demand—consumer demand at various prices  quantity demanded—consumer demand at each particular price

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SECTION 1

Nature of Demand

Law of demand:
 There is an inverse relationship between a product’s price and the quantity demanded.

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SECTION 1

Nature of Demand

What demand schedules and demand curves illustrate:
 Demand schedules show in table format
 the quantity of products consumers are willing to buy at

a series of possible prices  the quantity of products consumers are able to buy at a series of possible prices

 Demand curves show in graph format
 the data listed in demand schedules  the rate of change for demand at each price
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SECTION 2

Changes in Demand

Objectives:
 What does it mean for a product’s demand to shift?  What factors can shift demand for a product?  How do substitute goods differ from complementary goods?
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SECTION 2

Changes in Demand

When a product’s demand shifts, different quantities of a product are demanded at each and every price.

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SECTION 2

Changes in Demand

Determinants of product demand shifts:
 consumer tastes and preferences  market size  income  prices of related goods  consumer expectations
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SECTION 2

Changes in Demand

Difference between substitute goods and complementary goods:
 substitute goods—used to replace the purchase of similar goods when prices increase  complementary goods—commonly used with other goods

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SECTION 3

Elasticity of Demand

Objectives:
 What is demand elasticity?  What is the difference between elastic and inelastic demand?  How is demand elasticity measured?

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SECTION 3

Elasticity of Demand

Demand elasticity reflects the extent to which changes in a product’s price affect the quantity demanded by consumers.

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SECTION 3

Elasticity of Demand

Difference between elastic and inelastic demand:
 elastic demand—when a small change in a product’s price results in a significant change in the quantity demanded  inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded
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SECTION 3

Elasticity of Demand

Demand elasticity is measured by using the total-revenue test.

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CHAPTER 3

Wrap-Up
1. State the law of demand in your own words. Be sure to include how the income effect, the substitution effect, and diminishing marginal utility relate to the law of demand. 2. What causes movement along a demand curve—in other words, a change in the quantity demanded? How does this movement differ from a shift in demand?

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CHAPTER 3

Wrap-Up
3. What is the difference between a complementary good and a substitute good? Give an example of each kind of good for each of these products: ice cream, baseball game tickets, pencils. 4. Why is determining demand elasticity important to business owners? How can business owners measure demand elasticity?

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