Demand

Meaning
Law of demand
Determinants of demand
Demand schedule and curve
Types of demand
 Demand
Demand is:
The quantity of goods a consumer is
willing and able to purchase at vari-
ous prices
 Demand:Able
To have de-
mand, 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 de-
mand, you
must be willing
to purchase it

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

 The Law of Demand
Ceteris Paribus
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 de- Price
mand curve
is down-
ward slop-
ing D

Quantity
The factors that shift the demand curve can be re-
membered using the mnemonic
PIRATES:
1. Population
2. Income
3. Related good
4. Advertising
5. Taste and Preferences
6. Expectations of the Future prices
7. Seasonal Commodities
Types of Demand
Individual and Market Demand Ex ante and Ex post demand

Joint Demand
 Why is Demand
Downward Sloping?
•Income Effect
•Substitution
•EffectLaw of Diminishing Marginal
Utility
•Increase in the number of customers
•Several uses of a commodity
 Income Effect
When prices rise, a con-
sumer is less ABLE to pur- P Qd
chase 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 sub-
stitute 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 addi-
tional unit of a product
Law of Diminishing Mar-
ginal 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
A Point B:
Price $8 When the price is
A price $6
B lowered to $6, the
change means quantity demanded
there is
$4 increases to 3
movement
along the de-
mand curve
$2 D

1 2 3 4 5

Quantity
Exceptions to the Law of Demand
1. Giffen Goods
2.. Veblen goods
3.. Expectations of Future Prices
4... Emergencies
5... Quality price Relationship [High priced goods ]
6... Change in Fashion
 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 de-
manded? Why?

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

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