2.

1 Individual Demand: What You Want, At Each Price

An Individual Demand Curve

• BREAK IT DOWN:

◦ "Individual" means we are referring to one person

◦ "demand" means its about buying decisions

◦ "curve" means we are graphing it (sometimes

straight lines)

Graphing Conventions

• Price (Dependant variable) = vertical axis

• Quantity (Independent variable) = horizontal axis

◦ Just remember: "P's before Q's"

• Label units on both axes

◦ Interdependence principle: An individual demand curve holds other things constant - things

other than price can in uence ones demand

◦ Eg. demand for gas may change if you buy a more fuel-e cient car

‣ Downward Sloping individual demand curve: As the price gets lower, the quantity

demanded get larger and vice versa for upward slope

The Law of Demand

• When the price of a product goes up, the quantity demanded will

go down
2.2: Your Decisions and Your Demand Curve

Marginal Bene ts: listing in order of priority - from the uses that deliver the largest bene t to those

those that deliver the least bene t

The rational Rule for Buyers

• Price = marginal bene t

• demand curve is same thing as marginal bene t curve

Diminishing Marginal Bene t

• marginal bene t of each additional item is smaller than the marginal

bene t of the previous item

◦ downward sloping

2.3 Market Demand: What the Market Wants

• The purchasing decisions of all buyers taken as a whole.

◦ Nonpro ts seeking donations, universities seeking applicants, and Youtube wanna-be stars

seeking subscribers all bene t from being able to know market demand for what they're

selling

From Individual Demand to Market Demand

◦ Managers use survey data to gure out their market demand curves

‣ Survey potential customers:

• Step one: survey customer; ask each person the quantity they will buy at each price

• Step two: For each price, add up the total quantity demanded by each person in the

survey

• Step three: Scale up the quantities demanded by the survey respondents so that

they represent the whole market

◦ people surveyed should be representative of all potential customers

◦ The market demand curve plots the total quantity demanded by the market at

each price

• Step four: Plot the total quantity demanded by the market at each price, yielding the

market demand curve

◦ graphing conventions for market demand curves are the same as when

graphing individual demand curves - Price on vertical axis, quantity on

horizontal axis
The Market Demand Curve is Downward Sloping

• market tends to be higher when the price is lower

• prices change demand for both new and old customers

◦ consider demand of all potential customers when

estimating demand- not just current customers

2.4: What Shifts Demand Curves?

The Interdependence Principle and Shifting Demand Curves

• Interdependence Principle: reminds us that buyer's best choice also depends on many other

factors beyond price

◦ when those factors change, so might their demand decisions

• Shift in Demand Curve:

◦ When demand curve moves = a shift in the demand curve

◦ Any factor changing your marginal bene ts will shift your demand curve (at every price,

quantity demand is higher)

◦ rightward shift= increase in demand, leftward shift = decrease in demand (at every price,

quantity demand is low)

Six Factors Shifting the Demand Curve

• buying choices depend on many factors

1. Income

• normal good = demand for goods/ high income

• inferior goods (not bad; just buy less of with high income) = demand for goods decrease/ high

income

2. Your Preferences

• social pressure

◦ rising environmental awareness= decreased demand for gas-guzzlers

• seasons

◦ increase demand for shovels in winter/ bicycles in summer

• Unexpected events

◦ buying masks for covid/ toilet paper

◦ Interpreting the Data: How did Covid-19 shift demand?

‣ demand for travelling plummeted BUT demand for delivery of good spiked

‣ e-commerce sales jumped (online shopping demand)

• Complementary goods:

◦ the higher price of one good decreases = demand for another good (products that fall under

same category)

‣ Eg. new case complements new phone or gas complements a car

• Substitute goods:

◦ replace each other

‣ Eg. cycling, ride-sharing, taking the bus. REPLACE walking etc

• SUBSTITUTES AND COMPLEMENTS: SOMETIMES CAN INFLUENCE THINGS THAT ARE

OTHERWISE OUT OF YOUR CONTROL

4. Expectations

• Buyers expectations of FUTURE prices

◦ If buyers' expect that the price of the good will be increasing in the future, they are likely to

buy more today.

◦ Eg. believe gas prices will rise further, ll up today, increasing today's demand

‣ expectations about future gas prices can shift demand curve to left or to right

◦ Thinking about the future saves you money

5. Overcrowding and network e ects

• Usefulness of some products and ones demand for them is shaped by choices others make.
• Network E ect: where a product or service becomes more useful to you as more people use it

◦ Eg. social media platforms Canadians use (TikTok, instagram, Snapchat) are di erent than for

example, China whose main platform is WeChat

‣ This market means winning early rounds of competitions is critical to business's long-run

success

• Congestion E ect: some products become less valuable when more people use them

◦ Eg. demand for driving on a particular road declines if so many others are also using that

road; congestion and tra c, BUT ALSO demand for a particular formal dress night decrease if

someone else is wearing it

6. Type and Number of Buyers

• Type: If theres an increase in number of

buyers in a certain market, then the demand

for that good will increase

• Number: number of potential buyers rise-

more individual demand curves to add up

when calculating market demand

◦ more people means increased demand for a rms products

MORAL OF STORY: When things other than price change, your demand curve may shift.

2.5: Shifts versus Movements Along Demand Curves

movement

◦ all other factors in uencing the demand for the product remain constant.

• Shift in Demand Curve: When other factors than price change - left or right shift

◦ consumer income, expectations, preferences or prices of related goods (substitutes or

complements)

ACRONYM FOR THE SIX DEMAND SHIFTERS: PEPTIC