Demand
Chapter 4
Demand
• Demand – the desire to have a good or service and the ability to
pay for it
• Law of demand – states that when the price of a good or service
falls, consumers buy more of it
• Demand schedule – table that shows how much of a good or
service a consumer is willing and able to purchase at each price
(see page 100)
• Market demand schedule – shows quantity demanded by all
people at certain prices
Demand Curve
• Graph that shows how much of a good or service an individual is
willing to buy at each price
• Market demand curve – data in market demand schedule
Activity
• Work together on market demand schedule for pizza
• Each person in the group (no more than 3 per group) will fill in
how much they are willing to pay for pizza at each given price.
• Person 1 fills in Day 1; person 2 fills in Day 2, etc.
• Total number of slices sold at each price will help determine
market demand
Vera Wang: Designer in Demand
• Rad page 104 and answer questions
• How did Vera Wang respond to consumer demand?
• How did she create or generate consumer demand?
What Factors Affect Demand?
• Law of diminishing marginal utility – when marginal benefit from
using additional unit of good tends to decline as used.
• Change in quantity demanded – change in amount consumers will
buy, causes change in price
• Change in demand – occurs when a change in the marketplace
changes consumer behavior (unemployment, etc)
• There are several factors that affect demand
What Factors Affect Demand?
• Class is broken into 6 groups, each will explain how these factors impact the demand
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for designer jeans:
Group 1
Income
Group 2
Consumer Tastes
Group 3
Consumer Expectations
Group 4
Market Size
Group 5
Substitutes
Group 6
Complements
Inferior v. Normal goods
• Normal goods – consumers demand more of these when
their income level rises (high price or high quality,
expensive goods)
• Inferior goods – consumers demand less of these when
their income rises (discount jeans, cheap food)
Elasticity of Demand
• Elasticity of demand – how responsive consumers are to
price changes
• Elastic – larger change in quantity demanded and price
• Inelastic – when change in price leads to small change in
quantity demanded
• Can you think of anything that is INELASTIC?
What impacts elasticity?
• Substitute goods or services – is there something else that will fulfill
need/want?
• Proportion of income – the amount of your income that goes to pay
for something may cause it to be elastic/inelastic. The bigger portion of
your income, the more likely you will change habits if price increases.
• Necessity v. Luxury – is it something you NEED or WANT?
• Review chart on page 120, what items are “inelastic”?
Total Revenue Test
• Total revenue – the amount of money a company receives for selling its products.
(Price x. Quantity)
• Total revenue test
• If revenue increases after the price drops, demand is elastic (seller makes less per
unit, but demand increased enough to allow them to make more money)
• If revenue decreases after the price is lowered, demand is inelastic (seller makes
less money because demand didn’t increase enough)