Demand in Microeconomics

Demand in Microeconomics

• Demand: The amount of a good or service consumers are willing and able to purchase at different price points.

Law of Demand

• The Law of Demand states that as prices increase, the quantity demanded decreases, all other things being equal.

Ceteris Paribus

• Ceteris paribus is a Latin phrase meaning "all other things being equal." It's a crucial assumption in economics allowing us to isolate the relationship between two variables (price and quantity demanded).

Demand Schedule Example

• Shows how quantity demanded changes with different prices, maintaining other factors constant.

  • Price: 23, Quantity Demanded: 70
  • Price: 5, Quantity Demanded: 55
  • Price: 7, Quantity Demanded: 45
  • Price: 9, Quantity Demanded: 35
  • Price: 14, Quantity Demanded: 10

Demand Function

• The demand function expresses the relationship between quantity demanded (Qd) and price (P).
  • Formula: Qd = a - bP
    • a and b are constants; b is typically negative.

Calculating Quantity Demanded

• Given the demand function ( Qd = 80 - 5P ), if ( P = 2 ), the quantity demanded is 70.

Calculating Price

• Given the demand function ( Qd = 80 - 5P ), if ( Qd = 35 ), the price is 9.

Demand Curve

• The demand curve graphically illustrates the relationship between price and quantity demanded. The curve slopes downward, reflecting the inverse relationship.

Price and Quantity Demanded Relationship

• The demand curve shows that as price increases, quantity demanded declines, and vice versa.

Exceptions to the Law of Demand

• Some goods, like necessities (like insulin), see demand less affected by price changes--their consumption is relatively stable across different price ranges.