Learning Objectives
The learning objectives for this chapter are as follows.
- Distinguish between different states of demand and explain contexts wherein each state may be relevant.
- Describe the demand relationship and explain the law of demand.
- Identify and describe variables that shift demand. You should be able to say something about the direction of the demand shift.
- Explain the difference between substitutes and complements. Provide examples of each.
- Explain the difference between normal and inferior goods.
- Graph the inverse demand schedule given a demand equation and values of shift variables.
- Describe the concept of consumer surplus. Compute consumer surplus.
This chapter addresses the demand side of the market. This is also the buyer or customer side of the market. The overall aim of the chapter is to provide the background you need to use demand constructs to understand marketing strategies and models of market equilibrium that you will encounter later in the course. The chapter is organized into three sections. The first covers the states of effective, latent, and negative demand. Most of the course will deal with marketing problems for products or services in a state of effective demand. However, latent and negative demand states are important in product development and many social-marketing contexts. The second section introduces the basic mechanics of demand for a product or service under an effective demand state with a particular focus on the law of demand, the demand schedule, and variables that shift the demand schedule. Some of this will be a review of material you encountered in your introductory microeconomics course, but some will likely be new and/or will be presented in a way you have not yet encountered. The third section of the chapter introduces the idea of consumer surplus. Consumer surplus is presented in a way that should deepen your understanding of the law of demand. The concept will come up later in the course as a measure of economic welfare and will be used to understand pricing strategies used by sellers, many of which can characterized as attempts to convert consumer surplus into profits.
