2. DEMAND:
DEMAND IS ALWAYS EXPRESSED FROM THE PERSPECTIVE OF THE CONSUMER/INDIVIDUAL/BUYER

3. Law of Demand:
An increase in price causes a decrease in quantity demanded;
A decrease in price causes an increase in quantity demanded.
An INVERSE relationship.

4. Graphing Quantity Demanded:
Quantity Demanded (Horizontal Axis):Amount of a good/service that consumers would purchase at a particular price.
Price (Vertical Axis):What it costs in terms of currency to buy the good/service (what’s on price tag)

5. Quanity Demanded
A change in the quantity of a good or service that would be purchased at each possible price.

6. Questions… What determines the price of a Beanie Baby?
What happened to Furby?

7. Reactions Change Spending Patterns:
Substitution Effect: Consumers react to increase in price by consuming less of the good & more of other goods.
Substitute- product that is interchangeable in use with another product.
An increase in price of substitute increases demand for other substitutes.
Examples?

8.
Flowers— Substitution Effect

9. “Switching costs”
To avoid substitution effect, some companies charge customers when switching to another competing firm.

10. Income Effect:
Change in consumption resulting from a change or perception of change in income
There would be no demand for a product w/out the ability to pay for it.
Income gives buyers the
ability to pay for good/service.
If incomes increase, demand
increases as well.

11. Inferior Goods
As income increases, the demand for inferior goods decreases.

13. Normal Goods
Most goods are normal; a good that we demand more of when income increases.
We want more of the good stuff!

14. Price
Quantity Demanded $1
100 $2 90 $3 70 $4 40
Law of Demand:
At a given point in time, a rise in price causes a fall in quantity demanded.

17. Shifts in the Demand Curve:
Consumers change perceptions about the worth of a product
Deciding if they want it, not how much of it they want
Influenced by any factor other than price
Remember: Price generally refers to movement along the curve!

18. Shifts in the Demand Curve:
Shifts to the Right: demand rises/increases
Goods & services are More desirable/Increased worth of product

19. Shifts in the Demand Curve:
Shifts to the Left: decrease in demand
Consumers not willing to pay for a product/decreased desirability worth of the product

21. What Shifts Demand? 5 determinants: Tastes & Preferences Income
Price & Availability of Substitutes & Complements
Consumer Expectations
Population

23. Tastes and Preferences:
individual likings or partiality for specific goods or services.
Can you name any fads from your generation?

24. Substitutes-2 goods that could be used for same purpose
Substitutes-2 goods that could be used for same purpose. **If price of one good increases, demand for the substitute is likely to rise**

25. Complements:
Products employed jointly in conjunction with another product.
An increase in price of a complement decreases demand for other complements.
Examples?

27. Consumer Expectations:
Changes in consumer expectations about the future can cause changes in the current demand for products.
Example:
Wanting to buy a bike and finding out it will be on sale next week.
Example:
Black Friday
Others?

28. Gas Lines

29. Population
Market size: the number of consumers available to purchase a product
Demand for a product depends on the number of people in the market area.
Market size: when the number of consumers available to purchase a product changes, the demand curve also shifts
Baby Boomers
Influx of immigrants

31. Are there goods that you’d always find $$$ to buy, even if the price rose drastically?
Any you would cut back on or even stop buying all together?
Economists describe the way that consumers respond to price changes as Elasticity of Demand.

32. Elastic or Inelastic Demand:
Demand is ESPECIALLY sensitive to a change in price
(You will by less of a good after a small price increase)
Inelastic Demand-
Demand that is INSENSITIVE to a change in price.
(You will keep buying no matter what the price)

33. Come up w/ a list of 3 elastic & 3 inelastic goods Be prepared to defend your answer.

34. Which goods are Elastic vs. Inelastic? Explain.
Cell phone
Salt
Fur Coat
A Car
A new pair of leggings
A Kindle
Prescription Drugs
Diamonds
Sushi
Gasoline

35. Elasticity of Demand:
the relative size of the change in quantity demanded for good/service as a result of a change in its price.
Objective: used to measure consumers responsiveness of demand

36. Factors that determine the value of elasticity of demand:
# of close Substitutes available
Necessity v. Luxury
% of Income Spent on Good
Habit-Forming Goods
Time Period under consideration

37. # of Close Substitutes http://www. criticalcommons

38. Necessity v. Luxury-What are your basic needs?

39. Are they Habit-Forming Goods?
Governments tend to place ‘sin taxes’ on inelastic goods to limit consumption

40. % Of Income Spent on Good/Service

41. Time Period Under Consideration
More time under consideration = more elastic demand
. Ex. Gasoline
Over a Month- demand won’t change much
Over a Year -will change more
Additional time allows consumers to alter behaviors

42. Elasticity Ratio:
measurement of the degree of response of a change in quantity demanded relative to to a change in price.
Percentage Change = Original Number - New Number
Original Number
X 100

43. Elasticity of Demand Ratios:
Elastic: a demand condition in which relative size of the change in quantity demanded is greater than the size of the price change.
If demand is elastic the elasticity ratio is greater than 1

44. If demand is inelastic the elasticity ratio is less than 1
Inelastic: a demand condition in which the relative size of the change in quantity demanded is less than the size of the price change.
If demand is inelastic the elasticity ratio is less than 1

45. If demand elasticity is unitary, elasticity ratio is exactly 1
Unitary elasticity: a demand condition in which the relative change in the quantity demanded is the same as the size of the price change.
If demand elasticity is unitary, elasticity ratio is exactly 1

46. PERFECTLY ELASTIC:
quantity demanded varies from zero to infinity when there is a change in price.

47. PERFECTLY INELASTIC:
No change in the quantity demanded when price changes.

48. Its ALL about the SLOPE!
In general, the slope of a demand curve indicates how elastic or inelastic demand is.

50. Types of Demand Elasticity
Price ($) 2 4 6 8 10 12
Quantity
Relatively elastic
Perfectly inelastic
Perfectly elastic
Relatively inelastic 14

51. Hudsucker Proxy:

52. Supply and Demand Review