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What is Demand?

The combination of quantities that someone is willing and able to buy at various prices at a given time.

Key Elements of Demand

Desire to buy, willingness to buy, ability to buy.

Significance of Demand

Helps answer WHAT to produce, HOW to produce, FOR WHOM to produce.

Demand Schedule

A table showing quantities a person is willing to buy at various prices.

Demand Curve

A graphical representation of the demand schedule.

Law of Demand

Quantity demanded of a good or service varies inversely with its price.

Effect of Price Increase on Demand

When price increases, quantity demanded decreases.

Effect of Price Decrease on Demand

When price decreases, quantity demanded increases.

Market Demand

The total quantity demanded by everyone interested in buying the product.

Change in Quantity Demanded

Caused only by a change in price (movement along the demand curve).

Change in Demand

Caused by factors other than price (shifts the entire demand curve).

Factors Causing Change in Demand

Consumer income, consumer tastes, substitutes, complements, future expectations, number of consumers.

Utility

Satisfaction gained from using a product.

Marginal Utility

Additional satisfaction from consuming more of a product.

Diminishing Marginal Utility

Satisfaction decreases with additional quantities consumed.

Elasticity of Demand

The degree of responsiveness in quantity demanded due to a change in price.

Elastic Demand

Quantity demanded changes significantly with price changes.

Inelastic Demand

Quantity demanded changes little with price changes.

Unit Elastic Demand

Proportional change in quantity demanded to price.

Determinants of Demand Elasticity

Delay of purchase, availability of substitutes, proportion of income used for purchase.