Transcript Chapter 7
Tuesday • Bell Ringer – get out sheets • Chapter 7 – section 2 notes – Determinants of Demand – Pay Attention! • Practice graphing (if time) Bell Ringer 5/12/09 What happens to overall demand in these situations? (Increase or Decrease?) 1. Income increases 2. The price of a substitute drops 3. Population decreases 4. People dislike the product b/c it’s not popular 5. The cost of the compliment increases Chapter 7 The Demand Curve and Elasticity of Demand Graphing the Demand Curve • A demand schedule is a table reflecting quantities demanded at different possible prices. • A demand curve shows the quantity demanded of a good or service at each possible price. Demand curves slope downward, clearly showing the inverse relationship. Determinants of Demand • Main Idea: A change in the demand for a particular item shifts the entire demand curve to the left or right. • *Increase moves right • *Decrease moves left Highlight this in your notes!! 1. Population • D1 – represents the original demand for TV’s • D2 – represents the demand after the population increased • If population decreased, demand would also decrease 2. Income If Income increases, demand also increases. 3. Tastes & Preferences *This refers to what people like and prefer to choose. *Fads (trends) This Beanie Baby graph represents the demand in the early 1990’s. As the popularity died down, the demand curve shifted back to the left. FYI-There are Beanie Babies 2.0 now in stores featuring Cartoon characters (Madagascar, Diego & Dora, WonderPets) 4. Substitutes Determined by availability & price of substitute Think it through! If the price of the substitute decreases, then you’ll buy that instead of the original item. Vice versa: If the price of the substitute increases, you’ll be more of the original item. 5. Compliments *Things that are bought and sold together If the price of one decreases, the demand of BOTH complimentary items increases. This examples shows: If the price of a digital camera decreases, the demand of the camera AND the flash memory increases. The Price Elasticity of Demand • Main Idea: Elasticity of demand measures how much the quantity demanded changes when price goes up or down. • For some goods, a rise or fall in price greatly affects the amount people are willing to buy. This economic concept is referred to as elasticity. • The measure of how much consumers respond to a given change in price is referred to as price elasticity of demand. Examples Elastic Demand • Luxury items, vacations, high-end electronics, even coffee are examples of elastic goods/services and have a very elastic demand. Inelastic Demand • Staple foods, medicine, spices have an inelastic demand. A price change has little impact on the quantity demanded by consumers. Figure 11 • http://www.glencoe.com/qe/efcsec.php?qi =15318 • eflashcards