Transcript Supply And Demand - Sunnyslope High School

Unit 4: DEMAND
What is Demand?
1.
Demand (D) is:
the amount of goods and services
that consumers are willing and
able to buy at varying prices
• The desire to own something and
the ability to pay for it
Law of Demand

The law of demand states:
that consumers buy more of a good
when its price decreases and less
when its price increases.
 When
the price of the good increases,
consumers will buy less of it.
Law of Demand Cont…

The price of a good will strongly influence your
decision to buy.

The law of demand is the result of two separate
behavior patterns that overlap, the
substitution effect and the income effect.

These two effects describe different ways that a
consumer can change his or her spending
patterns for other goods
Law of Demand
1. shows a cause and effect relationship:
A. Cause = Price
B. Effect = Quantity Demanded
If: P = Price
QD = Quantity Demanded (and)
= increase
= decrease
= causes
Law of Demand Cont..
2. As the price of an item decreases, the
quantity demanded for an item will
increase :
P
QD
Law of Demand Cont…
3. As the price of an item increases, the
quantity demanded for the item will
decrease
P
QD
Demand
Demand:
A. Is illustrated by
the demand
curve (see graph)
B. It reflects a range
of possibilities
C. It does not
consider actual
availability
Demand
Curve
D1
Demand
3. Quantity
Demanded (QD) is:
A. the amount of
goods and services
that will be bought
at a specific time
and at a specific
price
B. QD= a specific
number (see
graph)
QD= 26
D1
Demand
5. Demand Curve
is:
A. a graphic
illustration
showing the
relationship
between prices
and quantity
demanded
B. curves go
down/right (see
graph)
P= 3 Q = 26
D1
Demand Schedule
A Demand Schedule is:
 a table that lists the
quantity of a good a
person will buy at
each different price.
A Market Demand
Schedule is: a table
that lists the quantity
of a good all
consumers in a
market will buy at
each different price.
Demand Schedule
for New DVD
Movies
Price of
DVD’s in ($)
Quantity
Sold
10
40
12
36
15
30
20
22
Substitution Effect

The substitution effect occurs when
consumers react to an increase in a
good’s price by consuming less of that
good and more of other goods.


EXAMPLE = price of pizza rises, pizza becomes more
expensive compared to tacos, salad, subs or burgers. As the
price of a slice of pizza increases, consumers have an
incentive to buy one of those alternatives as a substitute for
pizza. This will cause a drop in the demand for pizza.
Income Effect

The income effect happens when a
person changes his or her consumption of
goods and services as a result of a change
in real income, which is the amount of
money they make.

EXAMPLE= When the price of clothing, food and
gasoline increases, your limited budget just wont buy as
much as it used to. It feels as if you have less money and you
must cut back your purchases of some goods.
SECTION 1 QUESTIONS

1. What is the law of demand?

2. How do the substitution effect and
income effect influence decisions?

3. What is a demand schedule?

4. What is a demand curve?
Section 1 Assessment
1. The law of demand states that
A) consumers will buy more when a price increases.
B) price will not influence demand.
C) consumers will buy less when a price decreases.
D) consumers will buy more when a price decreases.
2. If the price of a good rises and income stays
the same, what is the effect on demand?
A) the prices of other goods drop
B) fewer goods are bought
C) more goods are bought
D) demand stays the same
Section 1 Assessment
3. Which of the following describes the
substitution effect?
A) As the price of a good falls, people will substitute other
products.
B) As the price of a good rises, people will substitute other
products
C) As demand rises, people will substitute other products
D) As demand falls, people will substitute other products
Section 1 Assessment
4. What do you think it means when an
economists says that a consumer has
demand for a good or service?
A) The consumer is able to afford the good or service, but
may be unwilling to buy it.
B) The consumer wants the good or service but may not
actually have the money for it.
C) The consumer is able to buy the good or service but not at
the price demanded
D) The consumer is willing and able to buy the good or
service at the specified price.
Bell Ringer
Take out a scratch sheet of paper. You have
two (2) minutes to answer the following
questions:
1.
2.
3.
4.
5.
When the price goes up, the quantity demanded
goes ____
When the price goes down, the quantity demanded
goes ____
What does the term Quantity Demanded mean?
Which way does a demand curve go?
What is a Demand Schedule?
Shifts in Demand Curves
A. Curve moves left
or right of the
original curve
A. Results of a
change in
demand (D)
Shifts in Demand Curves
C. Different from
change in the
quantity demanded
(QD)
C. A shift to left
represents a
decrease in demand
Increase
Price
D. A shift to the right
represents an
increase in demand
Shifts in the Demand
Curve
D1
D2
Decrease
D3
Quantity Demanded
What Causes Shifts in Demand?
1. Change in Income
(Increase or Decrease)
Normal Goods: a good
that consumers demand
more of when their
income increases
Inferior Goods: good that
consumers demand less
of when their income
increases
Causes Cont…
2. Consumer
Expectations:
Whether or not we
expect a good to increase
or decrease in price in
the future greatly affects
our demand for that
good.
Causes Cont…

3. Population
Changes in the size
of the population
also affects the
demand for most
products
Causes Cont…
4. Consumer Taste &
Advertising
(Fashions, fads, etc.)
Advertising and social
trends play an
important role in
many trends and
therefore influences
demand.
Fads come and go!
Prices of Related Goods
The demand curve for one good
can be affected by a change
in the demand for another
good
Compliment Goods
goods that are bought
and sold together
 Peanut Butter and Jelly
 Shampoo & Conditioner
Prices of Related Goods Cont..
The demand curve for one good
can be affected by a change
in the demand for another
good
Substitute Goods
goods used in place of
one another.
 Mr. Dew vs. Mt. Breeze
 Name brand vs. store
brand
Section 2 Questions

5. What factors can cause shifts in the
demand curve? Give an example of
each.

6. How does the change in the price of
one good affect the demand for a related
good?
Section 2 Assessment
1.
Going out and buying a diamond wedding ring
now, because diamond producers have
announced that diamond prices will go up at the
end of the month, is a good example of what
Demand Determinant?
2. Due to a sharp increase in the inflation rate, the
federal government decides to give all Social
Security recipients a 5% cost of living increase.
This is a good example of what type of Demand
Determinant?
Section 2 Assessment
3.
Changes in clothing style would be an example of
which demand determinant?
4.
An automobile and automobile tires would be a
good example of what type of demand
determinant?
5. On the board, draw a demand curve:
A. Label price and quantity demanded
B. Label curve D1
C. Show an increase in Demand (D2)
D. Show a decrease in demand (D3)
Section 2 Assessment
1. Which of the following statements is accurate?
A) When two goods are complementary, increased demand
for one will cause decreased demand for the other.
B) When two goods are complementary, increased demand
for one will cause increased demand for the other.
C) If two goods are substitutes, increased demand for one will
cause increased demand for the other.
D) A drop in the price of one good will cause increased
demand for its substitute.
Section 2 Assessment
2. For most goods, a rise in people’s income
means that there will be:
A) a substitution effect
B) a rise in prices
C) an increase in demand
D) a decrease in demand
3. A demand curve illustrates:
A) The differences in price charges by different stores
B) The quantities demanded at each price by consumers
C) The differences in demand for different products
D)The products which are most in demand
Section 2 Assessment
4. Substitutes are:
A) goods that are bought and used together
B) goods used in place of one another
C) goods that cannot be replaced
D) goods that cause a shift in the demand curve
5. How can expectations about the future change
consumers behavior?
A) Immediate demand for a good will drop if its price is
expected to stay the same
B) Immediate demand for a good can rise if the good is
expected to be plentiful
C) Immediate demand for a good will go up if the price is
expected to rise
Bell Ringer
1. Draw a demand curve:
A. Label price and quantity demanded
B. Label curve D1
C. Show an increase in Demand (D2)
D. Show a decrease in demand (D3)
2. List the 5 determinants of demand and
provide an example of each.
Elasticity of Demand

Elasticity of Demand = is a measure
of how consumers react to a change in
price.

Elasticity of demand dictates how drastically
buyers will cut back or increase their
demand for a good when the price rises or
falls.
Inelastic v Elastic Demand
Inelastic Demand

Demand for a good that consumers will
continue to buy despite a price increase
is inelastic or relatively unresponsive to
price change.

Examples= gasoline, life threatening
medicines, certain foods, water/utilities,
housing, transportation, jewelry, clothing,
entertainment
Elastic Demand

Demand for a good that is very sensitive
to changes in price is elastic. A
consumer with highly elastic demand for
a good is very responsive to price
changes. (tight budgets)
Examples= gasoline, life threatening
medicines, certain foods, water/utilities,
housing, transportation, jewelry, clothing,
entertainment
 Name brand to generic brand foods

Factors Affecting Elasticity
1. Availability of adequate substitutes
If there are few substitutes for a good, then demand will
not likely decrease as price increases


Yes = elastic demand
No = inelastic demand
2. Relative Importance
How much of your budget do you spend on a good


large percent = elastic demand
small percent = inelastic demand
Factors Affecting Elasticity Cont..
3. Necessities vs. Luxuries
Whether a person considers a good to be a necessity or a
luxury has a great impact on the good’s elasticity of
demand for that person


Necessities = inelastic demand
luxuries = elastic demand
4. Change over Time
When a price changes, consumers need time to change
their shopping habits. Consumers do not react
quickly to a price increase.

It takes time to find substitutes
Section 3 Questions

7. What is elasticity of demand?

8. What is inelastic and elastic demand?
Give an example of each.

9. What factors affect elasticity?
Section 3 Assessment
1. If the government were planning on
taxing certain products, which products
would be easier to tax:

Products that are elastic or inelastic? WHY?
2. List two products that tend to be elastic
3. List two products that tend to be inelastic
Section 3 Assessment
1. What does elasticity of demand measure?
A) an increase in the quantity available
B) a decrease in the quantity demanded
C) how much buyers will cut back or increase their demand when
prices rise or fall
D) the amount of time consumers need to change their demand
for a good
2. What effect does the availability of many
substitute goods have on the elasticity of
demand for a good?
A) demand is elastic
B) demand is inelastic
C) demand is unitary elastic
D) the availability of substitutes does not have an effect
Section 3 Assessment
3. If you keep buying despite a price increase,
your demand is:
A) elastic
B) inelastic
C) normal
D) strong
4. Which of the following is an example of a
good with inelastic demand?
A) televisions
B) computers
C) life saving medicines
D) chewing gum