Nature of Demand

Learning Objectives: Understand key economic terms related

to demand Learn to create/interpret demand

schedules and demand curves

Demand The amount of a good

that consumers are willing and able to buy at a given point in time.

Law of Demand: Increase in good’s price cause a

decrease in quantity demanded. Decrease in price causes increase in quantity demanded.

Price is the main variable affecting demand, so…

Price = DemandPrice = Demand

Income Effect Purchasing power:

amount of goods/services one can buy with a set amount of $$

Income effort: Change in purchasing

power due to change in price

Substitution Effect Consumers tend to choose the lower-

priced product if similar

Diminishing Marginal Utility

Marginal Additional/more

Utility Amount of satisfaction you get from

consuming a product

As more units are consumed, the satisfaction you get from each additional one decreases

*demand has a limit!

Market price:$4,500

New item*

Date of Purchase

Price per TV (in dollars)

Today $4,500

April 2013 $3,500

Half-yearly sale $3,000

4th of July sale $2,000

Labor Day sale $1,500

Black Friday $900

When will you buy the TV?