Demand

What is Demand?
 It is the relationship between
quantity demanded and
price, within a specific
period
 Individual vs.
Market Demand
 Market demand is the sum
of individual demands
 Market demand is usually
what economists are
interested in
 Individual Demand
 Consider my demand for
Popeye’s chicken (This is called
“Quantity Demanded, qd”)
 We can look at this
information in a table called a
“Demand Schedule”
Your Demand Schedule
Demand Schedule - a table
showing the relationship between
the price of a good and the
quantity demanded per period of
time, ceteris paribus.
 Ceteris paribus
 All other things being equal
My Demand Schedule

P ($) qd

$2.00 5
My Demand Schedule

P ($) qd

$2.00 5

$1.50 7
My Demand Schedule

P ($) qd

$2.00 5

$1.50 7

$1.00
10
15
 Law of Demand
 The price (willingness to pay) of
a product, service, or activity is
inversely related to the quantity
demanded, ceteris paribus.
 Applies to Market Demand (but
notice my demand for Popeye’s
obeyed the law)
 Demand Schedules and
Curves
 Demand Curve - a graph of
the demand schedule showing
the relationship between the
price of a good and the
quantity demanded per
period of time, ceteris paribus.
 Individual Demand Curve
P($)

Note: ALWAYS label your axes!

qd per semester
 Individual Demand Curve
P($)
2.00

1.50

1.00

0.50

qd per semester
0 5 10 15
Individual Demand Curve
P($)
2.00 A

1.50

1.00

0.50

qd per semester
0 5 10 15
 Individual Demand Curve
P($)
A
2.00

B
1.50

1.00

0.50

qd per semester
0 5 7 10 15
 Individual Demand Curve
P($)
2.00 A

B
1.50

C
1.00

0.50

qd per semester
0 5 7 10 15
 Individual Demand Curve
P($)
2.00 A

1.50 B

C
1.00
d
0.50

qd per semester
0
5 7 10 15
 Market Demand Curve
 The demand curve we just
drew was the Demand for
Popeye’s by one person.
 We want an aggregate
measure of the price,
quantity demanded
relationship--a market
demand.
Market Demand Schedule
 Market Demand is obtained
by summing horizontally the
quantity demanded by each
person at each price
Market Demand Schedule

P($) Mary’s
qd
5 3

10 2

15 1
Market Demand Schedule

P($) Mary’s Khalil’s

qd qd
5 3 12

10 2 8

15 1 3
Market Demand Schedule

P($) Mary’s Khalil’s John’s

qd qd qd
5 3 12 7

10 2 8 5

15 1 3 4
Market Demand Schedule

P($) Mary’s Khalil’s John’s Market

qd qd qd Qd
5 3 12 7 22

10 2 8 5 15

15 1 3 4 8
 Demand Curve

Note: the linear demand

is used for convenience
$15
$10

$5
D
Qd/t
8 15 22
 Change in D vs. Change in Qd

 Change in Demand - a change in a factor

that effects demand other than the price of
the good, thus there is a change in quantity
demanded at EVERY price.
 Change in Quantity Demanded - a
movement along a given demand curve-
due only to a change in the price of the
good itself
 Change in Demand

 Increase in demand - demand

curve shifts to the right

 Decrease in demand - demand

curve shifts to the left
 Increase in Demand
P

D D’
Qd/t
 Increase in Qd
P($)

D
Qd/t
Behind the Demand Curve
A demand curve is drawn under
the assumption of ceteris paribus -
all other important factors
remaining unchanged
Factors to be considered may be

remembered by D = D(PINTE)
 Factors affecting market
demand, PINTE
P = Prices
 I = income
 N = number of buyers
 T = tastes or preferences
 E = expectations about future
prices and market conditions
 Price of Other Goods
 The price of substitutes
 The price of complements
 Price of Substitutes
 What would happen to the
demand for Popeye’s if the price
of KFC fell?
 The demand for Popeye’s would probably
fall since people would buy KFC instead.
 There is a positive relationship
between the demand for a good
and the price of its substitutes
 Price of Substitutes
 Thus an increase in the price
of a substitute will increase
the demand for the good
 And a decrease in the price of
a substitute will decrease the
demand for the good
 Price of Complements
 Complementary goods are
goods used together
 What if the price of coke
goes up? What ought to
happen to the demand for
Popeye’s?
 Price of Complements
 Thus an increase in the price
of a complement will decrease
the demand for the good
 And a decrease in the price of
a complement will increase
the demand for the good
Price of Other Goods
-Summary
 Thus, either of the following
will increase Demand
• Price of a substitute good increases
• Price of a complement good decreases
 And either of the following
will decrease Demand
• Price of a substitute good decreases
• Price of a complement good increases
 Income
 For most goods there is a
positive relationship between
income and demand. These are
defined as normal goods.
 For inferior goods, there is an
inverse relationship between
income and demand.
Normal and Inferior Goods
 Is Popeye’s chicken a normal
good?
 Is it for you? If it is, upon
graduation and getting a job
you would buy more?
Normal and Inferior Goods

 What about Spam? Is the

relationship between income
and demand positive or
negative, c.p.?
 Cheaper food products are
examples of inferior goods
Number of Buyers
 A positive relationship - the greater
the number of buyers, the larger the
total quantity demanded of the good
at a given price. Demand increases,
or the demand curve shifts to the
right.
 Likewise, if there are fewer buyers in
the market there is less quantity
demanded at every price, so demand
has decreased.
Tastes and Preferences
 If we find out Popeye’s improves
our attractiveness to others, our
willingness to pay for it would
increase (an upward shift of the
demand curve)
 If we find out Popeye’s is
unhealthy the demand for the
good decreases (a leftward shift of
the curve)
 Expectations
 If we were to hear a new
story about how Popeye’s
prices were going to go up
would you stock up?
 Demand Review
 Demand curves downward and to the
right.
 Changes in only the price of a good
cause changes in the quantity
demanded.
 The only demand factor that cannot
cause a change in the demand of a good
is a change in its own price.
 PINTE factors may alone or jointly
change the demand for a good.
The End

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