Transcript Demand Curve Notes

DEMAND CURVE NOTES
DEMAND Defined:
 Demand: In economic terms, demand is
the amount of a good or service that a
consumer is willing and able to buy at all
the various possible prices during a given
time period.
 When represented graphically, DEMAND
is the whole curve itself
Quantity Demanded
 Quantity Demanded: the amount of a
good or service that a consumer is willing
and able to buy at each particular price
point during a given time period.
 When represented graphically, QUANTITY
DEMANDED is the individual points on the
curve
THE DEMAND CURVE
The Demand Curve ALWAYS slopes this way
The Law of Demand
 Law of Demand: states that an increase in
a good’s price causes a decrease in the
quantity demanded; and that a decrease
in price causes an increase in the quantity
demanded.
 In a free-enterprise system, price is the
main variable affecting Quantity
demanded.
Purchasing Power
 Purchasing Power: the amount of
money, or income, that people have
available to spend on goods and
services.
 Usually, as one’s purchasing power
increases, their Demand will increase for a
particular good/service as well.
Determinants of Demand
 Determinants of Demand: Factors, OTHER
THAN PRICE, that create more or less
demand for a product or service.
 These will shift the entire demand curve to
the Left (less demand) or the Right (more
demand).
 ***A price change will only change the
Quantity Demanded***
Determinants of Demand
 Consumer Tastes
 Ex. Bands, endorsements, “Going Green”
 Number of Consumers (market size)
 Embargos, New Technology can create new
markets while hurting others. (Cell phones Landline)
Determinants of Demand
 Income
 More $ = More likelihood of spending (Beef vs.
Steak Problem)
 Consumer Expectations
 (Expecting a Raise, predicting future prices)
 Prices of Related goods
 Substitute & Complimentary
Price of Related Goods
 Substitute Goods – A consumers tendency to
switch to a lower priced, but similar product.
(Butter vs. Margarine)
 Complementary goods – Goods that are
commonly used with other goods (Peanut
Butter & Jelly)
 ***Only 1 market will experience a Demand curve
shift…..the other experiences a price change or
Quantity Demanded
Practice
 In groups of 2-3, imagine that you are the
officers of a school club…..To raise money
for your club, you are selling tickets to a
dance. Your task is to think of ways to
increase ticket sales without lowering the
ticket prices…..
 Come up with as many ideas as you can
think of for ALL FIVE DETERMINATES OF
DEMAND to shift the Demand Curve for
dance tickets to the Right - - - - - - - - - - - - - >
Elasticity of Demand
 Elastic Demand - When a small change in
price GREATLY Changes the Quantity
Demanded
 The Demand Curve looks almost horizontal
 These goods are Not Necessities
 These goods have many substitutes
Elasticity of Demand
 Inelastic Demand - When a change in price
causes LITTLE or NO change in Quantity
Demanded
 The Demand Curve looks almost Vertical
 These goods are more need based
 These goods have few/no substitutes
 These goods are very cheap (Salt or Soap)
Price Elasticity of Demand
 PEoD =
 (%Change in Quantity Demanded)/(%Change in Price)
 To Calculate %Change in Quantity Demanded:
 [Qdemand(new) - Qdemand(old)] / Qdemand(old)
 To Calculate %Change in Price:
 [Price(new) - Price(old)] / Price (old)
 Price Elasticity deals in Absolute Values
Price Elasticity Practice
 Consider the following figures.
 Price
Quantity Demanded
$9
150
$10
110
What is the Price Elasticity of this Product?
Price Elasticity of Demand
 PEoD =
 (%Change in Quantity Demanded)/(%Change in Price)
 To Calculate %Change in Quantity Demanded:
 [Qdemand(new) - Qdemand(old)] / Qdemand(old)
 To Calculate %Change in Price:
 [Price(new) - Price(old)] / Price (old)
=============================
Step 1: [110 - 150 = -40] / 150 = .26667
Step 2: [10 - 9 = 1] / 9 = .1111
Step 3: (-.26667) / (.1111) = -2.4005
Answer: 2.4005 is the Elasticity of this good.
Price Elasticity of Demand
 * If PEoD > 1 then Demand is Price Elastic
(Demand is sensitive to price changes)
 * If PEoD < 1 then Demand is Price Inelastic
(Demand is not sensitive to price changes)