Demand What is demand?

Demand Demand - The desire to own something and the ability to pay for it. Law of Demand – Consumers will buy more of a good when price decreases and less when price increases

Demand (Ceretis Paribus) Market Demand Schedule PriceQuantity demanded $ $ $ $ $ $ Ind. Demand Schedule PriceQuantity demanded $1.005 $2.004 $3.003 $4.002 $5.001 $6.000

Demand

What do you think the substitution effect is? When there is a rise in price a consumer substitutes one item for another What do you think the income effect is? When prices rise of a certain good and you cut back on your consumption of that good. You either feel wealthier or poorer.

Do now: What are the two axes on the demand curve? What way is the curve shaped? Why is the demand curve shaped that way?

Demand curve and its shifts. Income Consumer expectations Populations Demographics Consumer tastes and advertising Complements and substitutes

Elasticity Elasticity of Demand: measures how drastically buyers will cut back or increase their demand for a good when prices rise or fall, respectively Unitary Elasticity – percentage change in demand is exactly equal to the percentage change in price.

Elasticity Inelastic - demand is unresponsive to price changes What are some inelastic goods?

Elasticity Elastic – demand for a good is very responsive to price changes.

Elasticity What factors effect elasticity? Is the product or service a luxury or a necessity? Luxury goods are very elastic. Needs are inelastic Why?

Elasticity Is a substitute available? If there are substitutes (elastic) Demand changes If there are no substitutes (Inelastic) Demand does not change

Elasticity How much of the person’s income does the purchase require? Houses vs. pencils VS.

Total revenue and elastic demand Total revenue – amount of money the company receives by selling its goods. When a product has elastic demand when prices rise per unit will decrease the quantity sold by a larger percentage. As a result total revenue decreases. Can work in reverse

Total Revenue and Inelastic Demand Increase in price of an inelastic product will decrease demand at a lower rate than an elastic product. Rise in price will not reduce revenue