Chapter 4 - Demand
Section 1 – What is Demand?

Demand – the willingness to buy a good or service and the ability to
pay for it

Law of Demand Quantity
demanded
goes down
Quantity
demanded
goes up
As price
falls…
As price
increases…
Figure 4.2 – Cheryl’s DVD Demand
Schedule
1. How many DVDs will
Cheryl be likely to
buy if the price is
$15?
2. What is the
relationship
between Cheryl’s
demand for DVDs
and various
quantities
demanded shown
on this table?
4.3 – DVD Market Demand
Schedule
1. How does the
quantity
demanded of
DVDs change
when the price
drops from $25 to
$10?
2. How does this
market demand
schedule illustrate
the law of
demand?
Demand Schedules

Demand Schedule – is a listing of how much of an item an individual
is willing to purchase at each price

Market Demand Schedule – is a listing of how much of an item all
consumers are willing to purchase at each price
Figure 4.4 – Cheryl’s DVD Demand
Curve
1. How many DVDs will Cheryl
buy when the price is $10?
2. How does this demand curve
illustrate the law of demand?
Figure 4.5 – DVD Market Demand
Curve
1. At which price will
Montclair Video Mart sell
175 DVDs?
2. Cheryl was unwilling to
buy any DVDs at $30.
Montclair Video Mart can
sell 50 DVDs at that price.
How do you explain the
difference?
Vera Wang
Section 2 –What Factors Affect
Demand

Law of Diminishing Margin – states that the marginal benefit of using
each additional unit of a product during a given period will decline
Figure 4.6 – Diminishing Marginal
Utility
How many video games is Kent
willing to buy at a price of $45?
How does the law of
diminishing marginal utility
explain his refusal to buy more
games at that price?
Patterns of Behavior

Why do consumers demand more goods and services at lower
prices and fewer at higher prices?

Income Effect – the change in the amount that consumers will buy
because the purchasing power of their income changes

Substitute Effect – change in the amount that consumers will buy
because they buy substitute goods instead
4.8 & 4.9 – Change in Demand
1. In Figure 4.8, how has demand for baseball cards changed at each of these prices:
$20, $30, and $40?
2. In Figure 4.9, how has demand for baseball cards changed at each of these prices:
$30, $40, and $50?
Factors That Cause a Change in
Demand
Factors
Income
Complements
Definition/Description
Increased income means consumers can buy more.
Decreased income means consumers can buy less.
When the use of one product increases the use of another
product increases
Substitutes
Goods and services that can be used instead of other goods
and services
Consumer Expectations
What you expect prices to do in the future can influence your
buying habits today
Consumer Tastes
The popularity of a good or service has a strong effect on the
demand for it
Popularity changes quickly
Market Size
A growing market usually increases demand.
A shrinking market usually decreases demand.
Section 3 – What is Elasticity of
Demand

Elasticity of Demand – a measure of how responsive consumers are
to price changes

Elastic – quantity demanded changes significantly as price changes


Example: Cosmetic Whitening
Inelastic – quantity demanded changes little as price changes

Example: Filling a Cavity
4.13 & 4.14 – Elastic and Inelastic
Demand Curve
1. In Figure 4.13, what happens to the quantity demanded when price drops from
$10 to $8?
2. In Figure 4.14, what is the difference in quantity demanded between the most
expensive and least expensive filling?
Three Factors That Determine
Elasticity

Substitute Goods or Services –

If there is no substitute for a good or service, demand for it tends to be
inelastic


Proportion of Income –

If you can’t afford something, your demand goes down


Example: Insulin – no matter how high the price is, consumers will always buy it
because it is a necessity
Example: hobby of photography – price goes up for supplies, you are less likely to
buy more supplies
Necessities versus Luxuries –

If it’s a necessity you will pay any price for it, however, if it is not, then you will
not pay any price for it

Example: milk vs. movie tickets
4.15 – Estimating Elasticity
What pattern can you see in
the factors that affect
elasticity?
Total Revenue

Total Revenue – a company’s income from selling its products
4.17 – Movie Ticket Revenue Table
When the price range
changes from $8 to $6, is
demand elastic or inelastic?
Explain.