Demand
Dr. T. D. Mitchell
Bonneville High School
Idaho Falls, Idaho
What is Demand?
• Concept Review
• Microeconomics is the study of the economic behaviors and decisions
of small units, such as individuals and businesses.
• Chapter 4 Key Concept
• Demand is the willingness to buy a good or service and the ability to
pay for it.
• Chapter Objective
• Explain the Law of Demand and describe the factors that affect
changes in demand.
Economics: concepts and choices, 2011. Holt McDougal
Section 1 Objectives
Define demand and outline what the law of demand says.
Explain how to interpret and create demand schedules and
describe the role of market research in this process.
Explain how to interpret and create demand curves.
The Law of Demand
• As the price of a good rises, the
demand will decrease. As the price of a
good decreases, the demand for the
good increases.
Economics: concepts and choices, 2011. Holt McDougal
Demand Schedules
Economics: concepts and choices, 2011. Holt McDougal
Demand Curves
Economics: concepts and choices, 2011. Holt McDougal
Reviewing Key Concepts
• Why does the demand curve slope downward?
• How are price and quality demanded related?
• List three products that you are familiar with the approximate price of
each. Which of the products, if any, do you have a demand for?
Consider the two requirements of demand as you answer the question.
• Does quantity demanded always fall if the price rises? List several
goods or services that you think would remain in demand even if the
price rose sharply. Why does demand for those items change very little?
Economics: concepts and choices, 2011. Holt McDougal
Section 2 Objectives
Determine a change in quantity demanded.
Explain the difference between change in quantity
demanded and change in demand.
Determine a change in demand.
Analyze what factors can cause change in demand.
What Factors Affect Demand?
• Law of diminishing marginal
utility.
• The income effect
• The substitution effect
Economics: concepts and choices, 2011. Holt McDougal
Demand and Supply Example: College Costs
Economics: concepts and choices, 2011. Holt McDougal
Economics: concepts and choices, 2011. Holt McDougal
What Factors Affect Demand?
• Change in quantity demanded
• Changes along the curve
• A change in price.
• Change in Demand
• Income
• Normal goods
• Inferior goods
• Market Size
• Consumer Tastes
• Consumer Expectations
• Substitute Goods
• Complementary Goods
Economics: concepts and choices, 2011. Holt McDougal
Critical Thinking
• What features of demand curves is explained by the law of diminishing
returns?
• How does the income effect influence consumer behavior when prices
rise?
• Why might an increase in income result in a decrease in demand?
• The U. S. government has been used many strategies to reduce
smoking. It banned television ads for cigarettes, ran public service
messages about the health risks of smoking, and imposed taxes on
cigarettes. Which factors that affect demand was the government
trying to influence?
Economics: concepts and choices, 2011. Holt McDougal
Section 3 Objectives
Define elasticity of demand.
Identify the difference between elastic and inelastic demand.
Define unit elastic.
Determine how total revenue is used to identify elasticity.
What is Elasticity of Demand?
• Elasticity of Demand
• Elastic
• Inelastic
• Unit elastic
What Determines Elasticity?
Substitute
Goods and
Services
Economics: concepts and choices, 2011. Holt McDougal
Proportion
of Income
Necessities
versus
Luxuries
Estimating Elasticity
Table Salt
Ice
Cream
Sports
Car
Gasoline
Insulin
Braces on
Teeth
Are there good
substitutes?
No
Yes
Yes
No
No
No
What proportion
of income does it
use?
Small
Small
Large
Small
Small
Large
Is it a necessity or
a luxury?
Necessity
Luxury
Luxury
Necessity
Necessity
Luxury
Conclusion
Inelastic
Elastic
Elastic
Inelastic
Inelastic
Elastic
Economics: concepts and choices, 2011. Holt McDougal
Calculating Elasticity of Demand
Economics: concepts and choices, 2011. Holt McDougal
Total Revenue Test
• Elasticity of demand influences
the amount of revenue
businesses earn.
• Total Revenue = P X Q
• If total revenue increases after
the price of a product drops,
then the demand is elastic.
• If total revenue decreases after
the price is lowered, demand is
considered inelastic.
Economics: concepts and choices, 2011. Holt McDougal
Total Revenue and Price Elasticity
Economics: concepts and choices, 2011. Holt McDougal
Calculating Elasticity of Demand
Economics: concepts and choices, 2011. Holt McDougal
Let’s Practice
Economics: concepts and choices, 2011. Holt McDougal