Select a business in our community that you patronize (go to). Note down the following: 1.What is the name and location of the business? 2. Why do you purchase from this business? 3.What is the competition for the business you selected? 4.What tactics does the business use to compete for business?

Microeconomics--Demand Demand= the desire, ability, and willingness to buy a product or service Microeconomics = area of economics that deals with behavior and decision- making by small units such as individuals and businesses

Demand Schedule and Curve A “Demand Schedule” shows price and quantity demanded at various prices of a product Price of Organic Milk (per gallon) Quantity Demanded $ $ $ $ $ A “Demand Graph” shows “Price” on the vertical axis and “Quantity” on the horizontal axis

Law of Demand = Quantity Demanded of a good or service varies inversely with its price Price goes up Quantity Demand goes down Price goes downQuantity Demanded goes up Change in quantity demanded due to change in price = Movement “along a curve” Change in demand = Shift in entire curve to show new demand at EVERY price

Reasons for Change in Demand (Shift in Entire Curve) Consumer Income Consumer Tastes/Preferences Price/Availability of Substitutes Price/Availability of Complementary Goods Consumer Expectations of Price Change Number of Consumers in the Market

Consumer Income More income in the market = more demand (shift to the right) Less income in the market = less demand (shift to the left) Consumer Tastes/Preferences Product become more popular = more demand (shift to the right) Product becomes less popular = less demand (shift to the left) REASONS FOR CHANGE: Advertising News reports New trend/fad Change in season of the year

Price/Availability of Substitutes (something you could use instead of the product) Price of substitute goes UP = Demand for product goes UP (shift right) Price of substitute goes DOWN = Demand for product goes DOWN (shift left) Availability of substitute goes UP = Demand for product goes DOWN Availability of substitute goes DOWN = Demand for product goes UP Price/Availability of Complementary Good (something that goes with the product) Price of complement goes DOWN = Demand for product goes UP (shift right) Price of complement goes UP = Demand for product goes DOWN (shift left) Availability of complement goes UP = Demand for product goes UP Availability of complement goes DOWN = Demand for product goes DOWN

Consumer Expectation of Price Change Price for product expected to go UP soon = demand for product now goes UP Price for product expected to go DOWN soon = demand for product now goes DOWN Number of Consumers More consumers enter the market = demand goes UP (shift to the right) Fewer consumers in the market = demand goes DOWN (shift to the left)

Demand Elasticity = a measure of how consumers’ demand reacts to a change in price “Elastic”= price change significantly impacts consumer demand (STREEEEEETCH) “Inelastic”= price changes DO NOT significantly impact consumer demand

Determining Demand Elasticity: The Three Questions 1. Can the purchase be delayed? YES=luxury=elastic demand NO=necessity=inelastic demand 2. Are there adequate substitutes available? YES=elastic demand NO=inelastic demand 3. Does the purchase use up a large portion of your income? YES=elastic demand NO=inelastic demand

Elastic or Inelastic? If you answer YES to all three questions, demand is very elastic. If you answer YES to two of three, demand is likely elastic. If you answer NO to two of three, demand is likely inelastic. If you answer NO to all three, demand is very inelastic.

Who Cares? Very important information for a business to know: --If demand for your good/service is ELASTIC, Raising price = less revenue Lowering price = more revenue (not including costs to produce, though) --If demand for your good/service is INELASTIC, Raising price = more revenue Lowering price = less revenue

Elastic or Inelastic? 1.Can delay purchase? 2.Adequate substitutes? 3.Large portion of income?

1.Can delay purchase? 2.Adequate substitutes? 3.Large portion of income? VS.

1.Can delay purchase? 2.Adequate substitutes? 3.Large portion of income?

1.Can delay purchase? 2.Adequate substitutes? 3.Large portion of income?