CHAPTER 3
Demand
SECTION 1: Nature of Demand
SECTION 2: Changes in Demand
SECTION 3: Elasticity of Demand
1
SECTION 1
Nature of Demand
Objectives:
 How does demand differ from the quantity
demanded?
 What does the law of demand state?
 What do demand schedules and demand
curves illustrate?
SECTION 1
Nature of Demand
Difference between demand and the
quantity demanded:
 demand—consumer demand at various
prices
 quantity demanded—consumer demand at
each particular price
SECTION 1
Nature of Demand
Law of demand:
 There is an inverse relationship between a
product’s price and the quantity demanded.
SECTION 1
Nature of Demand
What demand schedules and demand
curves illustrate:
 Demand schedules show in table format
 the quantity of products consumers are willing to buy at
a series of possible prices
 the quantity of products consumers are able to buy at a
series of possible prices
 Demand curves show in graph format
 the data listed in demand schedules
 the rate of change for demand at each price
SECTION 2
Changes in Demand
Objectives:
 What does it mean for a product’s demand
to shift?
 What factors can shift demand for a product?
 How do substitute goods differ from
complementary goods?
SECTION 2
Changes in Demand
When a product’s demand shifts,
different quantities of a product are
demanded at each and every price.
SECTION 2
Changes in Demand
Determinants of product demand
shifts:
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


consumer tastes and preferences
market size
income
prices of related goods
consumer expectations
SECTION 2
Changes in Demand
Difference between substitute goods
and complementary goods:
 substitute goods—used to replace the
purchase of similar goods when prices
increase
 complementary goods—commonly used
with other goods
SECTION 3
Elasticity of Demand
Objectives:
 What is demand elasticity?
 What is the difference between elastic and
inelastic demand?
 How is demand elasticity measured?
SECTION 3
Elasticity of Demand
Demand elasticity reflects the extent
to which changes in a product’s price
affect the quantity demanded by
consumers.
SECTION 3
Elasticity of Demand
Difference between elastic and
inelastic demand:
 elastic demand—when a small change in a
product’s price results in a significant
change in the quantity demanded
 inelastic demand—when a change in a
product’s price has only a slight effect on
the quantity demanded
SECTION 3
Elasticity of Demand
Demand elasticity is measured by
using the total-revenue test.
CHAPTER 3
Wrap-Up
1. State the law of demand in your own words. Be
sure to include how the income effect, the
substitution effect, and diminishing marginal utility
relate to the law of demand.
2. What causes movement along a demand curve—in
other words, a change in the quantity demanded?
How does this movement differ from a shift in
demand?
CHAPTER 3
Wrap-Up
3. What is the difference between a complementary
good and a substitute good? Give an example of
each kind of good for each of these products: ice
cream, baseball game tickets, pencils.
4. Why is determining demand elasticity important to
business owners? How can business owners
measure demand elasticity?