3. To make the concept of demand clearer, entitle the following examplesof the main economic concepts concerning it. Answer the questions.

Demand

Law of Demand

Diminishing marginal utility

Demand curve

Demand schedule

Figure 1.

1._______________________________

To see how an economist would analyzedemand, look at Panel A in Figure 1.Itshows the amount of a product that a consumer,whom we’ll call Mike, would bewilling and able to purchase over a rangeof possible prices that go from $5 to $30.

• How many units of a product would Mike buy at a price of $25 or $30?

• How many units would he buy if the price fell to $20?

• How many would hebuy if the price was $15?

• Is hewilling to buy more units of a product asthe price gets lower? What about you?

2._______________________________

Point ain Panel B showsthat Mike purchased three items of a product at a price of$15 each, while point b shows that he willbuy five at a price of $10. The demandschedule and the demand curve are similarin that they both show the sameinformation - one in the form of a table andthe other in the form of a graph.

• What differs the demand curve and the demand schedule?

• What makes them similar?

• Why is the demand curve downward sloping?

3. _____________________________

We might want to know howmany people would want to seea movie ona given afternoon if the price was $5. Or wemight want to know how many wouldwant to view it if the price was $10.The answers would depend on a numberof things, including the number of people livingin the area, the number and types of othermovies that were playing at the same time,and of course the popularity of the movieitself. But in the end, everything would bemeasured in terms of prices and quantities.

• Can any other factors influence the number of people willing to see a movie? What are they?

• Can you illustrate this economic concept by your own example?

4. ___________________________

The prices and quantities in Figure 1point out a feature of demand: for practicallyevery good or service that we mightbuy, higher prices are associated withsmaller amounts demanded. Conversely,lower prices are associated with largeramounts demanded.

• What happens with the quantity demanded when the price of something goes up?

• What happens with the quantity demanded when the price of something goes down?

5. ___________________________

When youbuy a drink because you are thirsty, you getthe most satisfaction from the first purchase.Since you are now less thirsty, youget less satisfaction from the second purchase,and even less from the next, so youare not willing to pay as much for the secondand third purchases.

• When you buy clothes, whydo you prefer a variety of colors and styles to identicalitems?

4. Match the terms with their definitions.

Term	Definition
Law of Demand	a concept specifyingthe different quantities of an item that will bebought at different prices.
Market demand curve	shows the various quantities demanded ofa particular product at all prices that mightprevail in the market at a given time.
Demand curve	a graph showingthe quantity demanded at each and everyprice that might prevail in the market.
Demand	states that thequantity demanded varies inversely withits price.
Demand schedule	shows the quantitiesdemanded by everyone who is interestedin purchasing the product.
Discussion Do you buy more of an itemwhen the price goes down, or less of it when theprice goes up? How does thisillustrate the concept of demand? How do you reactto a change in the price of an item? How is this behavior shown on the demand curve? If the pricesof some commodities or services drop,consumers willbe better able andmore willing to buythem. How doesthis situationreflect the Law ofDemand? How does the marketdemand curve reflect the Law of Demand?
Complements		the extra usefulness oradditional satisfaction a person gets fromacquiring or using one more unit of aproduct.
Inelastic		the principle which states that the extra satisfactionwe get from using additional quantitiesof the product begins to decline.
Elasticity		products that can be used in place of other products.
Elastic		related products that increase the use of the other.
Substitutes		a measure ofresponsiveness thatshows how onevariable responds to achange in anothervariable.
Marginal utility		type ofelasticity where achange in price causesa relatively largerchange in quantitydemanded
Diminishing marginal utility		type ofelasticity where achange in price causesa relatively smallerchange in quantitydemanded.
Discussion How does theprinciple of diminishing marginal utility explain theprice we pay for another unit of a good or service? What are the examples of substitutes? What happens with the demand for a product if the price of its substitute goes up? What happens with the demand for a product if the price of its substitute goes down? What are the examples of complements? What does an increase in the price of onegood usually lead toin thedemand for its complement?