economics chapter 3, section 1- the nature of demand
TRANSCRIPT
ECONOMICS
CHAPTER 3, SECTION 1-THE NATURE OF DEMAND
I. Demand
• A. Demand (D) is the amount of a good or service a consumer is willing and able to purchase at various prices during a given period of time.
W + A = D
I. Demand
• B. Quantity Demanded (QD) is the amount of a good or service a consumer is willing and able to purchase at each price during a given period of time.
I. Demand
• C. What is the difference between D and QD?
• D measures W + A at various prices.• QD measures W + A at one
(particular) price.
II. The Law of Demand
• A. When the price of a good or service increases, the quantity demanded decreases.
• When the price of a good or service decreases, the quantity demanded increases.
• B. This is an inverse (opposite) relationship.
II. The Law of Demand
P QDP QD
III. Demand Schedule
• A. A demand schedule illustrates the relationship between the price of a good or service and the quantity demanded for the good or service.
• B. The demand schedule shows the law of demand.
III. Demand Schedule
Price Per Car Quantity Demanded
$10,000 1000
$8,000 1200
$6,000 1500
$4,000 3000
$2,000 5000
IV. Demand Graphs
• A. A demand graph is a graphic illustration of the demand schedule.
• B. A demand curve plots the information from the demand schedule on to the demand graph.
• C. Each plotted point on the graph represents a specific combination of price and quantity demanded.
• D. The demand curve slopes downward, right.
P
QD1,000
4,000
6,000
10,000
8,000
2,000
1,200 1,500 3,000 5,0000
Price Per Car Quantity Demanded
$10,000 1000
$8,000 1200
$6,000 1500
$4,000 3000
$2,000 5000
D
V. Examples of the Law of Demand
• A. The Income Effect• 1. Purchasing Power-The amount of money
one has available to spend on goods and services.
• 2. Any change in a consumers’ purchasing power which is caused by a change in price
• 3. The income effect may not always apply.
V. Examples of the Law of Demand
PP D
PP D
V. Examples of the Law of Demand
• B. The Substitution Effect• 1. Substitute goods-Goods that can
be used in place of one another. • 2. Consumers tend to substitute a
similar, lower-priced good for another good that is higher-priced.
• 3. The substitution effect may not always apply.
V. Examples of the Law of Demand
P (original good) D (substitute good)
P (original good) D (substitute good)
V. Examples of the Law of Demand
• C. Diminishing Marginal Utility• 1. Utility-Usefulness or satisfaction
gained from the consumption of a good or service.
• 2. With each additional unit of consumption of a good or service, less satisfaction from each unit of consumption will be received.
V. Examples of the Law of Demand
• 3. Demand will decrease because at some point, consumers cannot use any more of a good or service.