In a Market System

Who Creates Demand??? It is the Consumer who creates demand Demand- Is the amount consumers want to purchase an item at various prices. REMEMBER when we are talking about the concept of demand, it is what a consumer is willing and able to buy.

What happens if Price goes up or Down? This Principle is known as the law of Demand. Law of Demand states that when something is cheap, the demand is high. When the price is high, the demand for that object is low. This is an INVERSE relationship. If we look at our textbook it gives the example of the price of pizza determining the amount of demand there is for a product.

What is the effect if a slice of Pizza costs more than a burrito? This situation is called the Substitution effect When a product similar to our desired product is cheaper, what is the obvious choice of the consumer?

I Am Broke! I can no longer afford a breakfast burrito everyday, therefore I am not going to eat breakfast anymore as a way to save money. Income effect- When prices rise often times consumers feel poorer and as a result do not buy the product or even a substitute product as a way to save.

Market Demand Market Demand- Consists of the sum of all individual demand schedules in the market A demand schedule is a table that lists the quantity of goods that a person would purchase at each price. Why would we want to know this?

Demand Schedule for stuffed animals — price up demand down; price down demand up Why do “sellers” or “producers” need to know this?

Demand Graphing By taking in data on what consumers will buy at certain prices a business man can get statistical data on the demand of a product.

Demand Graph A Demand Curve is a negative slope. Meaning it goes down from left to right. Level of Demand determines where it sits on the graph

What else will determine change in Demand? These are the non-price determinants of demand See text page “What Causes a Shift? Make a list of the “green” bold print and explain each term. On page 88 describe “complements” and “substitutes” also. For Example: How will demand for a product change if we think it is going out of style?

Elasticity of Demand Elasticity is the rate of change of demand for a particular product. Inelastic demand—when the rate of change of demand is low for a product Think of the demand for gasoline—when prices go up demand SHOULD go down—but it doesn’t—we still drive to work and school—and complain about the price. Elastic demand—when the rate of change of demand can shift up or down quickly Think of the demand for turkey the day after Thanksgiving— demand becomes almost non-existent even though prices are LOW—which should cause a shift UP in demand.