Demand Shifts. Law of Demand  Demand Curves shift when quantity demanded changes –Causes  Income –Normal good –Inferior good  Consumer expectations.

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Presentation transcript:

Demand Shifts

Law of Demand  Demand Curves shift when quantity demanded changes –Causes  Income –Normal good –Inferior good  Consumer expectations  Population  Consumer tastes and advertising

Law of Demand  Related Goods can also shift –Complements –Substitutes

Elasticity  Elasticity of Demand –A measure of how consumers react to a change in price  Inelastic- demand is not sensitive to a change in price  Elastic- demand is very sensitive to a change in price

Elasticity  Elasticity = % change in quantity demanded % change in price % change in price  Percentage change = original number-new number original number-new number original number X100 original number X100 If elasticity is less than 1- inelastic If elasticity is greater than 1- elastic

Elasticity  Factors affecting elasticity –Available of substitutes –Relative importance –Necessities vs. luxeries –Change over time  Elasticity and revenue –P. 96

Assignment  Use the same product that was used for the demand shift assignment  Come up with 5 different prices of your product  Poll 20 people about if they would be willing to buy your product at the 5 prices  Create a demand schedule and demand curve  Calculate the elasticity of your product –How would this elasticity affect the revenue of your product?

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