MR. SOUTHWARD DEMAND, SUPPLY, AND EQUILIBRIUM – TOPIC 3

DEMAND The desire to own something and ability to pay for it; must have both for demand to be present. Law of Demand Ask yourself: What quantity of a product are you willing to buy when the price of that product is “high?” When the price is “low?” Why do you think this is?

LAW OF DEMAND As Price then the Quantity Demanded will Two major reasons for the Law of Demand: Substitution Effect Income Effect

DEMAND SCHEDULE A table that lists the quantity of a good that a person will purchase at various prices in the market.

Does it do a business/society any good to view the demand for an individual? What would be better? The ENTIRE market for that product. Market Demand Schedule shows the quantities demanded at various prices by all consumers in the market.

DEMAND GRAPH (PAGE 78) Plot the following points in your own notes to create the Market Demand Curve for Soda.

GRAPHICAL ANALYSIS Will the graph always look like this? Using the terminology from the section thus far, explain why or why not.

SHIFTS IN THE DEMAND Does your behavior as a consumer always stay the same? Probably Not, our behaviors towards products constantly are effected by certain determinants. Normally, when we examine Demand and Supply we “hold everything else constant.” AKA Latin phrase, Ceteris Paribus;

NON-PRICE DETERMINANTS These factors will change our behaviors and therefore the entire line will shift: Income (normal vs inferior goods) Consumer Expectations. Change in Demographics Change in Population Sizes Consumer Tastes and Advertising Prices of Related Goods Substitutes Complements

EXAMINING THE DETERMINANTS Use the diagram to analyze all of the determinants which effect our behaviors as consumers. You must: Explain what the determinant is saying Come up with your OWN example Using “up and down” arrows, provide a shortened version of what in information is telling us (I will demonstrate the first one)

ELASTICITY OF DEMAND The way consumers respond to changes in price; Inelastic – unresponsive Elastic – responsive Unitary – percentage changes are equal

ELASTIC DEMAND Use the formulas on page 85 of your text to prove this line is elastic.

INELASTIC DEMAND Do the same for this demand line.

FACTORS AFFECTING ELASTICITY Availability of Substitutes Relative Importance Necessities Versus Luxuries Change Over Time Using the Table, explain each of these factors, give me the example out of the text book with explanation, and then come up with your own example that is different from the text.

TOTAL REVENUE AND ELASTICITY Upon completion of the table, answer the following the questions on the back based off your reading of the section starting on page 88 labeled “How Elasticity Affects Revenue.”