Demand

Demand Schedule P QD Oranges $4/lb. .5 million $3/lb. 1million $2/lb.

Law of Demand As P , QD (As P , QD ) There is an inverse relationship between P and QD NOT As P , D NOT As QD , P NOT As D , S

Demand Curve P $4 $3 $2 D QD .5m 1m 2m Oranges

Demand Curve P P2 QD P1 D QD Q2 Q1 Oranges

Shape and Slope of a Demand Curve Negative (slopes downward from l-r) Why? Law of Demand (inverse relationship between P and Q) Why true? Income Effect Substitution Effect

Shape and Slope of a Demand Curve Curved (not a straight line) Why? Law of Diminishing Marginal Utility (the ice cream effect)

A change in price can only cause a change in quantity demanded, not a change in demand. A change in quantity demanded is a movement along the demand curve. Each point on the curve represents the quantity demanded at a particular price.

Changes in Demand Demand is all the possible quantities consumers are willing and able to buy at various prices. Therefore, a change in demand is a shift in the whole curve. An increase in demand is a shift to the right. A decrease in demand is a shift to the left.

People are now willing and able to buy more at all prices. Increase in Demand P People are now willing and able to buy more at all prices. P2 D1 P1 D QD Q2 Q3 Q1 Oranges

Determinants of Demand (causes a change in demand) Consumer Tastes / Preferences (advertising industry) Income normal goods inferior goods Change in the price of a related good Substitutes

Papples QDapples Doranges QDoranges Substitutes P P D P2 QD P1 P1 D1 D D Q Q1 Q2 Q Q2 Q1 Oranges Apples Papples QDapples Doranges QDoranges

Determinants of Demand (causes a change in demand) Consumer Tastes / Preferences (advertising industry) Income normal goods inferior goods Change in the price of a related good Substitutes Complements

PPB QDPB DJelly QDJelly Complements P P D P2 QD P1 P1 D D D1 Q Q2 Q1 Q Q2 Q1 Jelly Peanut Butter PPB QDPB DJelly QDJelly

Determinants of Demand (causes a change in demand) Consumer Tastes / Preferences (advertising industry) Income normal goods inferior goods Change in the price of a related good Substitutes Complements Future Price Expectations Number of Consumers

Demand Schedule P QD Tacos Step 1 Using this information, draw out a demand curve $4/taco 1 million $3/taco 2 million $2/taco 4 million Tacos

Demand Schedule P QD Tacos Step 2 Next, show an INCREASE in Quantity Demanded $4/taco 1 million $3/taco 2 million $2/taco 4 million Tacos

Demand Schedule P QD Tacos Show on your graph what would happen to demand if the price of hamburgers dropped Step 3 $4/taco 1 million $3/taco 2 million $2/taco 4 million Tacos

Demand Schedule P QD Tacos Show on your graph what would happen to demand if the price of tortillas dropped Step 4 $4/taco 1 million $3/taco 2 million $2/taco 4 million Tacos

In pairs, complete pages 1 and 3 in your Supply and Demand packet In pairs, complete pages 1 and 3 in your Supply and Demand packet. Use your notes for help. Packet will be due the day of the test. Practice time

Price Elasticity of Demand Measures how responsive quantity demanded is to a change in price Gas is inelastic (not very responsive) Movies are elastic (very responsive) Determinants of Elasticity Necessity or Luxury? Number of Substitutes? Portion of Budget?

Price Elasticity of Demand Q Q Gas Movies

Total Revenue Test Total Revenue (TR) = P x Q If P, and TR, then D is inelastic If P, and TR, then D is elastic If P, and n/c TR, then D is unit elastic

Total Revenue Test Movie Prices Ticket Price Tickets Sold $6.00 x 100 = $600 $8.00 x 80 = $640 (inelastic) $8.00 x 50 = $400 (elastic) $8.00 x 75 = $600 (unit elastic)