1. Describe & illustrate the concept of demand.

2. Explain how demand & utility are related.

3. Explain what causes a change in quantity demanded

4. Describe the factors that can cause a change in demand.

5. Define & analyze the elasticity of demand for a product.

• demand demand schedule

• demand curve Law of Demand• marginal utility• diminishing marginal utility• change in quantity demanded• income effect substitution

effect• change in demand substitutes• complements elasticity• demand elasticity elastic• inelastic unit elastic

•Demand is NOT just the desire to have or own a certain product

•DEMAND is the DESIRE, ABILITY, and WILLINGNESS to BUY a product–When I want or need

something, do I demand it?–No, I must buy it.

• A demand schedule is a listing that shows the number demanded at different prices (table form)

Price Quantity Demanded

• A demand curve shows the quantity demanded at each & every possible price that may prevail in the market (line graph form)

• The line is ALWAYS downward sloping– Lower quantity will be demanded at

higher prices– Higher quantity demanded at lower

prices

• A change in price reflects movement along the curve (change in quantity demanded)

•There is an inverse relationship between price & quantity demanded– If price increases, demand decreases

– If price decreases, demand increases

• Utility is the amount of usefulness or satisfaction someone gets from the use of a product

• Marginal utility is the extra satisfaction one gets from getting one more unit of the product

• Diminishing marginal utility is the decreasing satisfaction as additional units of a product are acquired

• A change in price will cause a change in the quantity demanded, which is represented by movement along the demand curve

• This may occur because of 2 reasons:1. The Income Effect: change in price alters

consumers’ real income (prices drop, you have more income to spend)

2. The Substitution Effect: change in the relative price of the product (as compared with prices of other products)

• Together, they explain why consumers increase consumption when prices drop

If a change in demand is NOT caused by a

change in PRICE, the entire demand curve will shift = CHANGE

IN DEMAND

• People are now willing to buy different amounts of the product at the same prices

• Entire demand curve shifts– To the RIGHT shows an increase in

demand– To the LEFT shows a decrease in

demand

• Change in demand results in an entirely new curve

Factors that cause a change in demand (other than price):Write at least 3 facts for each.

1. Consumer Income2. Consumer Tastes3. Prices of Related Goods

Substitute Goods Complementary Goods

4. Change in Expectations5. Number of Consumers

•Elasticity is an important cause-and-effect relationship in economics

•Demand elasticity is the extent to which a change in price causes a change in the quantity demanded

•Will a change in price cause a relatively larger, a relatively smaller, or a proportional change in quantity demanded?

•Demand is ELASTIC: a change in price causes a relatively larger change in quantity demanded

•Demand is INELASTIC: a change in price causes a relatively smaller change in quantity demanded

•Demand is UNIT ELASTIC: a change in price causes a proportional change in quantity demanded

What determines demand elasticity?

Can the purchase be delayed?Yes: tends to be elasticNo: tends to be inelastic

Are adequate substitutes available?Yes: tends to be elasticNo: tends to be inelastic

Does the purchase use a large portion of income?Yes: tends to be elasticNo: tends to be inelastic