1. Chapter 4
DEMAND

2. Section 1 Understanding Demand
Demand-the desire to own something & the ability to pay for it.
Law of Demand-customers buy more of a good when its price decreases and less when its price increases

3. Law of Demand

4. Substitution Effect
When consumers react to an increase in the price of a good by consuming less of that good and more of other goods.

6. Income Effect
The change in consumption resulting from a change in real income.

7. Demand Schedule
A table that lists the quantity of a good a person will buy at each different price.

11. Ceteris Paribus
Latin phrase meaning all things held constant!

12. Causes of Shifts in the Demand Curve
Income
Consumer Expectations
Population
Consumer Tastes
Advertising

13. Elasticity of Demand
A measure of how consumers react to a change in price.

14. Inelastic
Describes demand that is not sensitive to a change in price.

16. Elastic
Describes demand that is very sensitive to a change in price.

18. Factors that Influence Elasticity
Price Range
Values of Elasticity
Availability of Substitutes
Relative Importance
Necessity vs. Luxury
Changes Over Time

19. Unitary Elastic Demand whose elasticity = 1 Example:
Arizona Iced Tea .99, elasticity of demand is unitary at 99 cents
The price increases to $1.98-What will happen to the demand?
It will decrease by 50%

23. Elasticity & Revenue
Elasticity of demand determines how the change in price will affect a company’s total revenue or income.

24. The Man In Black

25. Do Now
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