Chapter Summary - Demand PDF

NAME DATE CLASS Chapter Summary Demand ESSENTIAL QUESTIONS How does demand help societies determine WHAT, HOW, and FOR WHOM to produce? What are the causes of a change in demand?...

NAME DATE CLASS Chapter Summary Demand ESSENTIAL QUESTIONS How does demand help societies determine WHAT, HOW, and FOR WHOM to produce? What are the causes of a change in demand? Only a change in price can cause a change in What is Demand? quantity demanded. Demand is the various quantities of a product that someone would be willing and able to buy When price changes, consumers encounter the over a range of possible prices at a given income effect. Consumers may feel richer and moment. demand more when product price decreases. They may feel poorer and demand less when To understand and calculate demand, you product price increases. need to know the price of a product and the quantity of the product available at a given The substitution effect is the change in quantity point in time. demanded because of a shift in the relative price of the good. To analyze how an individual’s demand for a product would change depending on the price, The entire demand curve shifts to the right to economists create a demand schedule. It lists show an increase in demand; it shifts to the left the quantity an individual would demand at all to show a decrease in demand. possible prices that might prevail in the market at a given time. A demand curve shows the Demand can change because of various factors, same information, but in a graph instead of a including consumer income, consumer tastes, table. the price of related goods, expectations, and the number of consumers in the marketplace. The Law of Demand states that the quantity demanded varies inversely with its price. Economists call it a law because the theory Elasticity of Demand has proven true in many studies and it fits within our Consumers react to a change in price by Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use. changing the quantity demanded. The extent to larger understanding of the field of economics. which a change in price causes a change in the It is also common sense: we observe that quantity demanded is known as demand people normally buy more of a product at elasticity. lower prices than they do at higher ones. The market demand curve illustrates the Demand is elastic when a change in price quantities demanded by everyone who is causes a relatively larger change in quantity interested in purchasing a product at all demanded. possible prices. It is downward sloping, consistent with the Law of Demand. Demand is inelastic when a given change in price causes a relatively smaller change in Utility describes the amount of usefulness or quantity demanded. satisfaction that someone gets from the use of a product. Marginal utility explains the extra Demand is unit elastic when a given change in usefulness or additional satisfaction a person price causes a proportional change in quantity gets from acquiring or using one more unit of a demanded. product. Diminishing marginal utility describes the phenomenon where individuals’ satisfaction decreases as they acquire additional units of the product. 1 Factors Affecting Demand A change in quantity demanded in response to a change in price results in movement along the demand curve.