Demand

Unit 2: Supply & Demand

Burritos
 Demand
Demand is:
The quantity of goods a
consumer is willing and able to
purchase at various prices
 Demand: Able
To have
demand, you
must be
ABLE to
purchase it
You may want a palace, but you don’t have
demand for it since you are not ABLE to buy it.
 Demand: Willing
To have
demand, you
must be
willing to
purchase it

If you don’t want to buy it, you don’t have demand.

 The Law of Demand

When the price increases, the

quantity demanded decreases.
When the price decreases, the
quantity demanded increases.
 Law of Demand
Inverse relationship between price
& quantity demanded

P Qd P Qd
 Demand Graph
Price

Quantity
 Demand - Down
The Price
demand
curve is
downward
sloping D

Quantity
 Why is Demand
Downward Sloping?
Income Effect
Substitution Effect
Law of Diminishing
Marginal Utility
 Income Effect
When prices rise, a
consumer is less ABLE P Qd
to purchase something.
The opposite is true. P Qd
 Substitution Effect
If there’s a substitute
for a good, you will
be less willing and
able to buy the good
if the substitute is
cheaper. If Coca-Cola becomes more expensive, you’ll
buy less of it since you can substitute Pepsi
for it.
 Marginal Utility
Utility = usefulness
Marginal Utility
The usefulness of one additional unit
The satisfaction we get from consuming an
additional unit of a product
Law of Diminishing
Marginal Utility
Satisfaction decreases as
consumption of a
particular good increases
Goods lose usefulness
each time you
consume/purchase
another
Demand Schedule
Price Quantity Demanded

$2 5

$4 4

$6 3

$8 2

$10 1
 Demand Graph
$10
A Point A:
Price $8 At $8, the
quantity
$6
demanded is 2
$4

$2 D

1 2 3 4 5

Quantity
 Demand: Price Changes
$10 Point B:
A
Price $8
When the price is
lowered to $6, the
A price B
change
$6 quantity
means there demanded
is movement $4 increases to 3
along the
demand $2 D
curve

1 2 3 4 5

Quantity
 Review Questions
What is demand?
What is the Law of Demand?
What three things cause demand to have a downward slope?
What is the Law of Diminishing Marginal Utility?
What is the income effect?
What is the substitution effect?
On a graph, how do we show a change in quantity demanded
due to a change in price?
Changes in Quantity Demanded
1) The price of a latte at Starbucks is raised from $4 to
$8. Will that cause an increase or decrease in the
quantity demanded? Why?

2) Movie tickets at Edwards Cinema were $11 last week.

Today, they lowered the price of a ticket to $5.50. Will
that cause an increase or decrease in quantity
demanded? Why?