Demand (Easy Way)

Demand
Demand means the willingness and capacity to pay.
Prices are the tools by which the market coordinates
individual desires.
Demand is the amount of a product that people are
willing and able to purchase at each possible price
during a given period of time.
The demand curve is the graphic representation of the
law of demand.
The demand curve slopes downward and to the right.
As the price goes up, the quantity demanded goes down.

The Law of Demand

Law of demand there is an inverse relationship
between price and quantity demanded.
Quantity demanded rises/ falls as price falls/ rises ,
other things constant.
People tend to substitute for goods whose price has
gone up.
People feel poorer when price rises with same level of
income. We buy products for their utility- the pleasure,
usefulness, or satisfaction they give us.
One can measure or rank his utility by the maximum
amount you would be willing to pay for this product

The Law of Demand

Law of demand there is an inverse relationship
between price and quantity demanded.
One reason the demand curve slopes downward is due
to diminish marginal utility. The principle of diminishing
marginal utility says that our additional satisfaction
tends to go down as we consume more and more units.
(Are we ready to pay more or less??)
To make a buying decision, we consider whether the
satisfaction we expect to gain is worth the money we
must give up.

From a Demand Table to a

Demand Curve
A Demand Table

A
B
C
D
E

$0.50
1.00
2.00
3.00
4.00

9
8
6
4
2

Price per DVDs (in dollars)

Price per DVD rentals

cassette demanded per
week

A Demand Curve

$6.00
5.00
4.00
3.50
3.00
2.00
1.00
.50
0

E
D

G
Demand for
DVDs

C
F

1 2 3 4 5 6 7 8 9 10 11 12 13
Quantity of DVDs demanded (per week)

Price (per unit)

A Sample Demand Curve

PA

D
0

QA

Quantity demanded (per unit of time)

Demand Schedule and

Demand Curve for DVDs

Other Things Constant

Other things constant places a limitation on the
application of the law of demand.

These factors may include changing tastes, prices of other goods,

income, even the weather.
Demand Curves can also shift in response to the following factors:
Buyers (of): changes in the number of consumers
Income: changes in consumers income
Tastes: changes in preference or popularity of product/ service
Expectations: changes in prices, availability what consumers
expect to happen in the future
Related goods: compliments and substitutes

Taxes or subsidies to consumers

Price (per unit)

Change in Quantity Demanded

$2

B
Change in quantity demanded
(a movement along the curve)

$1

D1
0

100
200
Quantity demanded (per unit of time)

Determinants of Demand

Number of buyers

Income
Tastes

Prices of related goods

Expectations

Price (per unit)

Shift in Demand
Change in demand
(a shift of the curve)

$2

$1

A
D0
D1

250
100
200
Quantity demanded (per unit of time)

Income/ Substitutes/ Complementary

An increase in income will increase demand for normal
goods and will decrease demand for inferior goods.
If you expect your income to rise, you may consume more
now.
If you expect prices to fall in the future, you may put off
purchases today
When the price of a substitute good falls, demand falls for
the good whose price has not changed.
When the price of a complement good falls, demand rises
for the good whose price has not changed.

From Individual Demands

to a Market Demand Curve

A $.0.50
B
1.00
C
1.50
D
2.00
E
2.50
F
3.00
G
3.50
H
4.00

9
8
7
6
5
4
3
2

6
5
4
3
2
1
0
0

(2)
Cathys
demand

1
1
0
0
0
0
0
0

(3)
Market
demand

16
14
11
9
7
5
3
2

$4.00
Price per cassette (in dollars)

(1)
(2)
(3)
Price per Alices Bruces
cassette demand demand

3.50

3.00

2.50

2.00

1.50

1.00
0.50
0

A
Cathy

Bruce Alice Market demand

8 10 12 14 16

Quantity of cassettes demanded per week

McGraw-Hill/Irwin

2004 The McGraw-Hill Companies, Inc., All

Rights Reserved.

Aggregation of Demand (I)

Aggregation of Demand (II)

Change in Demand vs. Change

in the Quantity Demanded