Transcript Demand - Waukee Community School District Blogs

Demand
Demand is:
 The amount of goods and services that consumers are
willing and able to buy at various prices.
 Illustrated by the demand curve.
 Reflects different quantities at various prices
 Does not reflect supply
Law of Demand
 As price goes up, quantity demanded goes down.
 As price goes down, quantity demanded goes up
 SO

P causes
Qd
P causes
Qd
Demand varies inversely with changes in price
Demand Schedule vs. Curve
 The Schedule is a list of
prices and quantity
demanded at each price.
 The Demand Curve is a
graphic illustration of the
demand schedule.
Quantity Demanded
 The amount of goods and
services that will be bought
at a specific time and at a
specific price.
 It’s illustrated by one point
on the demand curve, not the
whole line. (A)
 A change in price causes
quantity demanded to
change (A to B)
 A change in quantity
demanded is illustrated by a
shift along the line.
 From point a to point b
The dot represents
one quantity
demanded
A
B
Demand Curve
 Price will always go on the
vertical axis (Y axis)
 Quantity will always go on the
horizontal axis (x axis)
 The demand curve will always
be drawn as going down and
to the right. Why?
 The law of demand, that’s why.
Demand as Illustrated on a
curve
 Demand is different than
quantity demanded.
 Demand is represented by
the combination quantities
demanded.
 It’s the whole line.
A
B
Determinants of Demand
 Factors that cause the
demand curve to shift.
 Different than a change in
quantity demanded.
 Something other than price
causes demand to change.
 The whole curve shifts left
(decrease) or right
(increase).
 At every single price, you
are willing to purchase
more, or less of a product.
Complements
 Complements –
 You are soooo good
looking…..no not that type of
compliment.
 Goods used with other
goods. Yeah that’s it.
 Ex. Peanut butter AND Jelly
 Qd for Peanut butter
increases, D of jelly
increases.
Jelly
Income
 Either actual or expected
changes in income change
demand.
 Expect a raise, demand
increases.
 Expect to lose your job,
demand decreases.
 Affect both willingness and
ability to purchase.
 Increase in income increases
demand for almost all
products. Inverse is true as
well.
Taste
 No….not the taste that goes Yum, Yum.
 Preferences, fashions and fads.
 Popularity
 Demand is affected by information about the product.
 Ex. People prefer Coke to Pepsi. D for Coke increases, D for
Pepsi decreases.
Expected Price Change
 The price hasn’t actually changed yet, it’s in the future.
 When we expect price to increase in the future, buy now before
it goes up.
 Or….wait until the price comes down.
 Our expectations drive demand, and prices, more than anything
else.
Substitutes
 Goods used instead of other goods.
 Use the word OR in between the two goods and usually they
are substitutes.
 Ex. Ham or Turkey for a sandwich
 Demand varies inversely with substitutes.
 D ham increases, d turkey decreases.
Elasticity of Demand
 The degree to which the
quantity demanded
changes in response to a
change in price.
 Elastic = small change in
price results in big change
in quantity demanded
 Illustrated by shallow
slope of demand curve.
 If elasticity is greater than
1, demand is elastic
Inelastic Demand
 Quantity demanded is NOT
very responsive to changes
in price.
 Even a large change in price
results in relatively little
change in demand.
 If Elasticity is less than 1,
demand is said to be
inelastic.
Determinants of
Elasticity
• Ability to postpone the purchase.
not able to postpone = inelastic
if able to postpone easily, elastic
Availability of substitutes
No substitutes = inelastic
Substitutes = elastic
• Proportion of income consumed
large percent = elastic
small percent = inelastic
Calculating Elasticity
 First, you need to find the percent change in demand:
 (Original Demand – New Demand)/Original Demand
 Then you need to find the percent change in Price:
 (Old Price – New Price)/Old Price
 Lastly:
 %Change in Demand / Percent Change in Price = Elasticity
Practice Calculating Elasticity
Increase in
Price
$40 to $50
$50 to $60
$60 to $70
$70 to $80
$80 to $90
Decrease in
Demand for
Sneakers
210 to 180
Percent
Change in
Demand
Percent
Change in
Price
Elasticity of
Demand
14
25
.56
180 to 150
150 to 120
17
20
.85
20
17
1.18
120 to 90
$90
$60
90 toto60
25
14
1.79
33
13
2.54
What price changes show inelastic demand?
Why is demand elastic at some prices and inelastic at others?
How would demand have to change for a price change to be unitary elastic?