Transcript Chapter 7

• Bell Ringer – get out sheets
• Chapter 7 – section 2 notes
– Determinants of Demand
– Pay Attention!
• Practice graphing (if time)
Bell Ringer
What happens to overall demand in
these situations? (Increase or
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
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
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
• 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 &
*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
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
The Price Elasticity of
• 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.
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
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