3. Demand
What is demand?
1. Desire
2. Ability
3. Willingness
Demand is how much of a product would be
bought at any given price
4. Demand Curve/Schedule – shows
the quantity demanded at all
possible prices
$3.00
Price
$1.00 D’
D
D’’
5 10 15 20 25 30
Quantity Demanded
Law of Demand – As the price increases, the quantity demanded
decreases and as the price decreases, the quantity demanded
increases.
5. Demand Curve for Popcorn
$3.00
Price
$1.00 D’
D
D’’
5 10 15 20 25 30
Quantity Demanded
(number of bags)
6. What Changes Demand? (Causes
a new curve to be drawn)
1. Change in consumer tastes
3. Change in consumer income
5. Price of related goods
7. Demand Curve for Popcorn
$3.00
Price
$1.00 D’
D
D’’
5 10 15 20 25 30
Quantity Demanded
(number of bags)
8. • Substitutes – goods/services that take the place
of each other
• Compliments – goods/services that go together
• Inferior goods – when the price of something
becomes so low that people don’t buy it because
they think that something is wrong with it
• Law of diminishing marginal utility – as additional
units of a product are acquired the
usefulness/satisfaction of that product
decreases
9. • Joe eats one can of Spam per week.
Recently, Joe received a significant raise
in his income. Over the course of the
following month, Joe purchased only one
can of Spam. Does this situation
contradict the law of demand? Why or
why not?
10. Demand Elasticity
-the extent to which a change in
price changes quantity demand
$3.00
Price
$1.00
D
5 10 15 20 25 30
Quantity Demanded
11. Test for Determining Demand
Elasticity
• 3 Questions to ask
– Can the purchase be delayed?
– Does the purchase take up a large % of your
income?
– Are there any substitutes?
If you answer ‘yes’ to 2 or more it is elastic, if
you answer ‘no’ to 2 or more it is inelastic.
12. Supply – the amount that is
available/offered for sale
Law of Supply – As the price increases
the quantity supplied increases. As
the price decreases the quantity
supplied decreases.
13. What can change supply?
• Cost of Resources (Inputs)
• # of Sellers
• Gov’t Regulations
• Technology
• Productivity
• Taxes
• Producer Expectations
14. Supply Curve for Popcorn
S’’ S
$3.00
S’
Price
$1.00
5 10 15 20 25 30
Quantity Supplied
(number of bags)
15. Supply Elasticity
-the extent to which a change in
price changes quantity supplied
S
$3.00
Price
$1.00
5 10 15 20 25 30
Quantity Supplied
16. Test for Determining Supply
Elasticity
Two Questions to Ask:
1. Is it easy to produce?
2. Can it be made quickly?
If you answer yes to both questions it is an
elastic supply. If you answer no to both
questions it is an inelastic supply.
