The Nature of Demand

 Demand—The amount of a good or service

that a consumer is willing and able to buy at
various possible prices during a given period
of time.
 Quantity Demanded—Amount consumer is
willing and able to buy at each particular price
during given time period.
Demand
 Demand: 2 Important Conditions
 Consumer must be willing to buy
 Consumer must be able to buy
 *Not only be willing to buy a good or service
but be able to pay for it.
 *Conditions change—Time can change the
demand for a good or service.
The Law of Demand
 An increase in a goods price causes a
decrease in the quantity demanded and a
decrease in price causes an increase in the
quantity demanded.
 Price – Up Quantity Demanded –Down
 Price –Down Quantity Demanded –Up

 Consumers like low prices. The lower the

price, the more they are willing and able to
buy!
Reasons for Downward Slope
 Income Effect—Any increase or decrease in
consumers purchasing power (funds available to
spend on goods and services) caused by a change in
price.
 We have $30 to spend on video games:
 Ex. Video game prices increase from $50 to $60
 Consumers: Because the price of video games goes
up, the consumer is willing and able to buy less of
them.
Substitution Effect
 Substitution Effect—The tendency of
consumers to substitute a similar, lower priced
product for another product with a higher
price.
 Hamburger rises to $5.00 per pound
 Substitute chicken @ $3.00 p/pound
 The quantity demanded of hamburger
decreases as price increases because
consumers are willing and able to buy less
hamburger. The reason…they are willing to
substitute the cheaper chicken.
Diminishing Marginal Utility
 Utility=Usefulness of a product or the amount
of satisfaction an individual receives from a
product.
 Diminishing Marginal Utility—The more of
a product that is consumed, the satisfaction
from each additional unit declines.
 Marginal: Means one additional unit

At some point consumers cannot use any more

of a product.
Demand Schedules
 Demand Schedule—A way
to show the relationship
between the price of a good
and the quantity that
consumers demand. Price $ Quantity
 The schedule shows the Demanded
quantity of goods that
consumers are willing $5.00 1
and able to buy at a
series of possible prices. $4.00 2
 Inverse relationship $3.00 3
$2.00 4
$1.00 5
Demand Curve
Demand Curve—A graph that plots all
the possible combinations of prices and
quantities demanded.
P
5

4
D
3

Q
1 2 3 4 5