© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.11
CHAPTER 4
Demand
4.1 The Demand Curve
4.2 Elasticity of Demand
4.3 Changes in Demand
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.12
CHAPTER 4
Demand
Why are newspapers sold in vending machines that
allow you to take more than one copy?
How much do you eat when you can eat all you want?
What cures spring fever?
What economic principle is behind the saying, “Been
there, done that”?
Why do higher cigarette taxes cut smoking by
teenagers more than by other age groups?
Consider
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.13
LESSON 4.1
The Demand Curve
Explain the law of demand
Interpret a demand schedule and
demand curve
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.14
LESSON 4.1
The Demand Curve
demand
law of demand
marginal utility
law of diminishing marginal utility
demand curve
quantity demanded
individual demand
market demand
Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.15
Demand
Demand indicates how much of a
product consumers are both willing and
able to buy at each possible price during
a given period, other things remaining
constant.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.16
Law of Demand
The law of demand says that quantity
demanded varies inversely with price,
other things constant. Thus, the higher
the price, the smaller the quantity
demanded.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.17
Law of Demand
Demand, wants, and needs
Substitution effect
Income effect
Diminishing marginal utility
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.18
Demand Schedule
and Demand Curve
Demand versus quantity demanded
Individual demand and market demand
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.19
Demand Schedule
Price Quantity Demanded
per Pizza per Week (millions)
a $15 8
b 12 14
c 9 20
d 6 26
e 3 32
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.110
8 14 20 26 32
Millions of pizzas per week
$15
12
9
6
3
0
Price
pe
r p
izza
Demand Curve for Pizzaa
b
c
d
e
D
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.111
$12
8
4
1
(c) Chris
$12
8
4
1 2
(b) Brianna
$12
8
4Price
1 2 3 Pizzas
(per week)
(a) Hector
Individual Demand for Pizzas
dH
dB
dC
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.112
$12
8
4Price
1 2 3 Pizzas
(per week)
(d) Market demand for pizzas
6
Market Demand for Pizzas
dH
dB
dC
D+ + =
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.213
LESSON 4.2
Elasticity of Demand
Compute the elasticity of demand, and
explain its relevance.
Discuss the factors that influence
elasticity of demand.
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.214
LESSON 4.2
Elasticity of Demand
elasticity of demand
total revenue
Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.215
Computing the
Elasticity of Demand
Elasticity of demand measures the
percentage change in quantity demanded
divided by percentage change in price.
Elasticity
of demand=
Percentage change in
quantity demanded
Percentage
change in price
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.216
Computing the
Elasticity of Demand
Elasticity values
Elasticity and total revenue
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.217
8 14 20 26 32
Millions of pizzas per week
$15
12
9
6
3
0
Price
pe
r p
izza
The Demand for Pizza
D
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.218
Determinants of
Demand Elasticity
Availability of substitutes
Share of consumer’s budget spent
on the good
A matter of time
Some elasticity estimates
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.219
50 75 95100 Millions of gallons per day0
$1.25
1.00
Pric
e pe
r ga
llon Dy
D m
Dw
Demand Becomes
More Elastic Over Time
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.220
Selected
Elasticities of Demand
Product Short Run Long Run
Electricity (residential) 0.1 1.9
Air travel 0.1 2.4
Medical care and hospitalization 0.3 0.9
Gasoline 0.4 1.5
Movies 0.9 3.7
Natural gas (residential) 1.4 2.1
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.321
LESSON 4.3
Changes in Demand
Identify the determinants of demand,
and explain how a change in each will
affect the demand curve.
Distinguish between the money price of
a good and the time price of a good.
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.322
LESSON 4.3
Changes in Demand
tastes
movement along a given demand curve
shift of a demand curve
Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.323
Changes That Can
Shift the Demand Curve
Changes in consumer income
Normal goods
Inferior goods
Changes in the prices of related goods
Substitutes
Complements
Changes in the size or composition of the population
Changes in consumer expectations
Changes in consumer tastes
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.324
Movement Along a Demand Curve
Versus a Shift of the Curve
A change in price, other things constant,
causes a movement along a demand
curve, changing the quantity demanded.
A change in one of the determinants of
demand other than price causes a shift of
a demand curve, changing demand.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.325
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Price p
er
piz
za
D
An Increase in the
Market Demand for Pizza
D'
fb
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.326
b
D
A Decrease in the
Market Demand for Pizza
8 14 20 26 32Millions of pizzas per week
$15
12
9
6
3
0
Price p
er
piz
za
j
D'
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.327
Extensions of
Demand Analysis
Role of time in demand
The cost of waiting in line
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