Microeconomics
Demand
Intro to Demand

Demand is the desire, ability and willingness to buy a product, can compete with others who
have similar demands

Microeconomics deals with behavior and decision making by small units such as an individual
and is needed for business planning

Investigate Demand – What works in a certain area? Competitor prices? Data from the past?

Demand schedule – various quantities of products demanded at different prices

Law of demand – quantity of a demanded good or service varies inversely with price; if price
goes up, quantity demanded goes down; more obstacles you put in place (higher prices),
discourages people from buying;
-common sense and observation consistent with Law of Demand; more people buy at lower
prices; examples?

Market Demand – what is demanded by everyone interested in
purchasing the product

Individual and market demand curves are similar. They both show that
amount demanded will increase as price lowers;
-The difference is market demand curve accounts for everyone in the
market for the good.
Demand and Marginal Utility
-utility – the amount of usefulness or satisfaction someone gets from the product
-marginal utility – the extra satisfaction someone gets from acquiring one more of a product
-diminishing marginal utility – extra satisfaction we get from additional quantities of product lessen
as someone acquires more of that item
-This explains the curve on the demand curves; people are not willing to pay as much for
three of an item as they would be for one. Examples?
Change in Quantity Demanded v.
Change in Demand

Change in quantity demanded – movement along the demand curve that shows a change in
the quantity of the produce purchased with the change in price

When prices drop, consumers pay less for products leaving them with more real income
Ex: If shoe prices drop from $125 to $100, and you buy three pairs, you are $75 richer, so you may
buy more shoes. The opposite would happen if price went up. This is called the income effect –
change in quantity demanded because a price change that alters consumers’ real income
-
Tendency to replace a more costly item with a less costly item is the substitution effect.
-Sometimes the actual demand itself changes because people are willing to buy different amounts
of a product at the same price. This creates a new curve – change in demand Why could demand
change? Examples?
-Consumer income – income goes up, curve moves to the right
-Consumer taste – you don’t like the product anymore, curve moves to the left
-Substitutes – Splenda instead of sweet-n-low; demand for an item usually goes up, if the
price of its substitute goes up.
-Complements – smart phones and apps; if the price of the phones increase, fewer apps
sold because you can’t afford the phone
-Changing expectations – If you hear that Apple is coming out with a new phone in six
months, you may not buy a phone now. You may choose to wait. Also, items become
obsolete
-Number of consumers – more consumers could increase demand, which would results in
price increases; curve shifts to the right
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Elasticity – measure of responsiveness that tells how a dependent variable responds to change
in an independent variable; Ex: quantity v. price
-demand elasticity – the extent to which a change in price causes a change in quantity
demanded; shows how sensitive consumers are to changes; most of the time changes in price
matter
-Elastic demand is when change in price causes a larger change in quantity demanded
-Inelastic demand is when change in price causes a smaller change in quantity demanded
-Unit Elastic Demand means the change in price and quantity is proportional
Determining Elasticity
Type of Elasticity
Change in Price
Change in
Expenditure
Elastic
Unit Elastic
Inelastic
Movement of
Price and
Expenditure
Opposite
No change
Same