IT’S THURSDAY…

Identify the following 1.Demand 2.Law of demand 3.Demand schedule 4.Market demand schedule 5.Demand curve 6.Substitution effect 7.Income effect

DEMAND Remember: In a market, buyers demand goods, sellers supply those goods, and the interactions between the 2 groups lead to an agreement on the price & quantity of trade.

Demand The desire to own something AND the ability to pay for itThe desire to own something AND the ability to pay for it Law of DemandLaw of Demand –when a good’s price is lower, consumers will buy more of it –when the price is higher, consumers buy less PRICE As prices go down… DEMAND Quantity demanded goes up

Demand = 2 behaviors Law of demand is a result of 2 behavior patternsLaw of demand is a result of 2 behavior patterns –Substitution effect: consume less of one good and more of a substitute good Ex: if price of pizza goes up replace it with an alternative like a tacoEx: if price of pizza goes up replace it with an alternative like a taco –Income effect: change in consumption resulting from a change in real income Ex: if the price of pizza goes up but you don’t increase buying of a replacementEx: if the price of pizza goes up but you don’t increase buying of a replacement

Demand Schedule Individual Demand Schedule: Table that lists the quantity of a good that a person will purchase at each price in a marketIndividual Demand Schedule: Table that lists the quantity of a good that a person will purchase at each price in a market Market Demand Schedule: shows the quantities demanded at each price by all consumers in the market (looks like individual with same prices but with larger quantities demanded)Market Demand Schedule: shows the quantities demanded at each price by all consumers in the market (looks like individual with same prices but with larger quantities demanded)

Limits of a Demand Curve Only accurate for one very specific set of market conditionsOnly accurate for one very specific set of market conditions Based on fact that all other factors are held constantBased on fact that all other factors are held constant Demand curves can shift because of changes in factors other than priceDemand curves can shift because of changes in factors other than price

ALL DEMAND SCHEDULES & CURVES REFLECT THE LAW OF DEMAND!!! (higher prices, less demand )

Ceteris paribus “all other things held constant” Only taking into account the price of an item Not looking at the other factors that would change demand (ex: a change in quality)

Changes in Demand ceteris paribusWhen we drop the ceteris paribus rule and allow other factors to change, we no longer move along the demand curve Instead, the entire demand curve shifts A shift in the demand curve means that at every price, consumers buy a different quantity than before change in demandThe shift = change in demand

What causes a shift? Income:Income: –when income increases, demand for normal goods increase (curve shifts right) inferior goods –When income increases, demand for inferior goods decreases (curve shifts left) Consumer expectationsConsumer expectations PopulationPopulation: if population increases demand for houses would increase; baby boom generation Consumer tastes & AdvertisingConsumer tastes & Advertising

Prices of Related Goods The demand curve for one good can be affected by a change in the demand for another good. Complements:Complements: hot dogs and hot dog buns Substitutes: skis and snowboards

Draw a Demand Curve PriceQuantity Demanded $ $ $ $ $ Draw a demand curve using the information from the demand schedule. 2.Draw and label a new curve resulting from an increase in demand. 3.Draw and label a new curve resulting from a decrease in demand.