SOURCE : ECONOMICS Principles, Problems, and Policies by McConnel, Brue and Flynn.

1. Define and illustrate demand

LO6 3-2
 • Demand
• The willingness and ability of consumers
to purchase at a given price
• Demand schedule or demand curve
Quantity Demanded
• Amount consumers are willing and able
to purchase at a given price
• Other things equal

LO2 3-3
A table showing the various amounts
of a product that consumers are
willing and able to buy at each
specific price in a series of possible
prices during a specified time
period.

3-4
 shown in a graph illustrating how much of
a given product a household/consumer
would be willing to buy at different
prices.
 a graph of a demand schedule
 illustrates the inverse relationship
between price and quantity
 the downward slope indicates lower
quantity and higher prices, higher
quantity at lower prices
3-5
 P
6

Price (per bushel)

4 20 3

3 35 2

2 55 D
1
1 80
0 10 20 30 40 50 60 70 80
Q

Quantity demanded (bushels per week)

LO2 3-6
 Negative slope indicates the inverse
relationship of the Price and the
• Qd = a – bP quantity
• Where:
• Qd is the quantity demanded
• a is the consumption at price 0 (or the y-
intercept)
• b is the slope of the line computed as
• Change in Qd__or Qd2 – Qd1
change in price P2 – P1
NOTE THAT THE COMPUTED VALUE IS TAKEN AS AN
ABSOLUTE VALUE SINCE THE NEGATIVE SIGN IS
ALREADY STATED IN THE EQUATION
• P is the price of the good
3-7
 Market Demand for Corn, Three Buyers

Quantity Demanded

Total
Price Joe Jen Jay Qd
per bushel per week
$5 10 12 8 30

4 20 23 17 60

3 35 39 26 100

2 55 60 39 154

1 80 87 54 221

LO2 3-8
 • Law of demand
• Other things equal, as price falls, the
quantity demanded rises, and as price
rises, the quantity demanded falls,
• Explanations
• Price acts as an obstacle to buyers
• Income effect (buy more at lower
prices, buy less at higher prices)
• substitution effect (increase demand
for substitute goods, if price is lower)
LO2 3-9
• Movement along a demand curve
• a movement from one point to another
point on a fixed demand curve.
• Price change causes the quantity
demanded to change.
• A change in quantity demanded assumes
every other factor affecting demand is
held constant (ceteris paribus)

3-10
LO2
 P
6

5
Price (per bushel)

4 Change in quantity
demanded
3

1
D1
D3
0
2 4 6 8 10 12 14 16 18 Q
Quantity demanded (thousands of bushels per week)

LO2 3-11
• A change in demand is cause by a
change in other factors affecting
demand (except price), also called
determinants.
• A new relationship between price
and quantity is established
• A shift of the demand curve

3-12
 P
6

5
Increase

Price (per bushel)

4 4000 3

3 7000 2
D2
2 11,000
1 Decrease
D1
1 16,000 in demand
D3
0 Q
2 4 6 8 10 12 14 16 18
Quantity demanded (thousands of bushels per week)
LO2 3-13
 P
6 Change in demand

5
Price (per bushel)

2
D2

1
D1
D3
0
2 4 6 8 10 12 14 16 18 Q
Quantity demanded (thousands of bushels per week)

LO2 3-14
 P
6 Change in demand

5
Price (per bushel)

4 Change in quantity
demanded
3

2
D2

1
D1
D3
0
2 4 6 8 10 12 14 16 18 Q
Quantity demanded (thousands of bushels per week)

LO2 3-15
 • Change in consumer tastes and
preferences
• Change in the number of buyers
• Change in income
• Normal goods
• Inferior goods

LO2 3-16
 • Change in prices of related goods
• Complementary good
• Substitute good
• Change in consumer expectations
• Future prices
• Future income

LO2 3-17
 Favorable change in consumer taste
 Increase in the number of buyers
 Rising income if product is a normal good
 Falling income if product is an inferior
good
 Increase in the price of a substitute good
 Decrease in the price of a complementary
good
 Consumers expect higher prices in the
future
3-18
 Unfavorable change in consumer taste
 Decrease in the number of buyers
 Falling income if product is a normal good
 Rising income if product is an inferior
good
 Decrease in the price of a substitute good
 Increase in the price of a complementary
good
 Consumers expect lower prices in the
future
3-19
Determinants of Demand: Factors That Shift the Demand Curve
Determinant Examples
Change in buyers’ tastes Physical fitness rises in popularity, increasing the demand
for jogging shoes and bicycles; cell phone popularity rises,
reducing the demand for land-line phones.
Change in the number of buyers A decline in the birthrate reduces the demand for children’s
toys.
Change in income A rise in incomes increases the demand for normal goods
such as restaurant meals, sports tickets, and necklaces while
reducing the demand for inferior goods such as cabbage,
turnips, and inexpensive wine.
Change in the prices of related goods A reduction in airfares reduces the demand for bus
transportation (substitute goods); a decline in the price of
DVD players increases the demand for DVD movies
(complementary goods).
Change in consumer expectations Inclement weather in South America creates an expectation
of higher future coffee bean prices, thereby increasing
today’s demand for coffee beans.
3-20
Keep everything except your pen on top
of the table for the lesson exam 3-21