Topic 4.1 Demand schedule

4.1 Understanding Demand
Objectives
1. Explain the law of demand.
2. Understand how the substitution effect and the income effect influence decisions.
3. Create a demand schedule for an individual and a market.
4. Analyze the information presented in a demand curve.

Buyers demand goods, sellers supply those goods, and the interactions between the two groups lead to an agreement on the price and the amount traded.

Law of Demand – Consumers buy more of a good when its price decrease and less when its price increases.

Price Increase Quantity Demanded Decrease

Price Decrease Quantity Demanded Increase

The law of demand is explained by two patterns

Substitution Effect – When consumers react to an increase in a good’s price by consuming less of that good and more of other goods.

EX: The price of school pizza goes up so you eat bagels instead.

Income Effect – The change in consumption resulting from a change in real income.

EX: When the price of movie tickets goes up, it makes you feel poorer, so you buy fewer movie tickets.

You only demand goods that you can afford to buy. You may want a Lamborghini, but if you cannot afford one then you don’t demand it.

Demand Schedule – A table that lists the quantity of a good a person will but each different price.

Market Demand Schedule – A table that lists the quantity of a good all consumers in a market will buy at each different price.




Individual Demand
Price of a slice
of pizza ($) Quantity demanded
per day
.50 6
1.00 4
1.50 3
2.00 1
2.50 1
3.00 0

Market Demand (everyone in the classroom added together)
Price of a slice
of pizza ($) Quantity demanded
per day
.50 95
1.00 72
1.50 60
2.00 32
2.50 15
3.00 8

Graphing
Individual Demand Curve Market Demand Curve

Price on y-axis
Quantity Demanded on x-axis
Draw demand for both












The demand curve tells how quantity demanded will be affected by a change in price.