Demand (D) and Marginal Benefit (MB)

Demand is a schedule or curve showing the relationship between various prices (P) and quantities (Q) purchased by buyers.

Each buyer's individual demand curve comes from the buyer's benefit-cost rule: Buy another unit if its marginal benefit (MB) to you exceeds (or at least covers) the price you pay for it.

Consider a product-market example:

Use the information in the table below to construct a demand curve in the diagram to the right:
Student  Maximum donut price (=MB) 1. Philip, donut 1 $1.25 2. Elaine 1.00 3. Braylan .75 4. Daryn .50 5. Philip, donut 2 .25 6. Carl .25 7. Amanda .24 8. Alex .10 9. Marika .03
	Each tickmark: Price $0.20; Quantity: 2

There are two ways to look at demand:
	(1)	Given any price (P), the horizontal distance out to the demand curve tells us the quantity demanded (Qd).
		Example: P=______ => Qd = ______       P=______ => Qd = ______
	(2)	Given any unit, the vertical distance up to the demand curve tells us the maximum demand price for that unit, which equals the unit's marginal benefit (MB) to the person who buys it.
		Example: marginal benefit of unit 1 = $_____       marginal benefit of unit 4 = $_____

Key lessons:
    (1) Lurking behind every demand curve are consumer benefits.
    (2) Demand curves always slope down (this is called the "law of demand").
    (3) Price steers consumption of an item to its highest-valued uses.

Looking ahead: The consumer surplus for any unit is the excess of what you are willing to pay (your MB) over what you actually have to pay (the market price).
    If the price is $.20, how much consumer surplus does the buyer of donut 1 enjoy? _____