This document discusses concepts related to demand, including: 1. Demand is determined by desire and ability to pay. The law of demand states that as price rises, quantity demanded falls, and vice versa. Demand is graphed with quantity on the horizontal axis and price on the vertical axis. 2. Factors that can shift the demand curve include tastes, income, prices of substitutes and complements, expectations, and population. A shift to the right indicates increased demand while a shift to the left indicates decreased demand. 3. Elasticity measures the responsiveness of quantity demanded to price changes. Demand is elastic if a small price change leads to a large quantity change, inelastic if

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

2. Demand
The desire to own something and the ability
to pay for it.

3. Law of Demand:
A rise in price causes a
decrease in quantity
demanded;
A decline in price causes an
increase in quantity
demanded.
An INVERSE relationship.
https://www.youtube.com/watch?v=5IWotuQB
gs4

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. 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?
https://www.youtube.com/watch?v=RRDSj62tlvQ

7. http://www.yadayadayadaecon.
com/clip/59/
http://economicsoftheoffice.com/all/?q
=demand Flowers— Substitution Effect

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

9. Income
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.

10. Income
Income gives buyers the ability to pay
for a good or service.
If incomes increase, demand generally
increases as well.
Income Demand

11. Inferior Goods
A good that decreases
in demand as income
increases

13. Normal Goods
Most goods are normal; a good that we
demand more of when income increases.

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

16. 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!

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

18. 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

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

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

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

24. 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?

25. Gas Lines

26. Population
Demand for a product depends on the
number of people in the market area.
Ex. Baby Boomers

28. Warm Up
Name the 5 determinants that can shift
the demand curve?

29. Application
With a partner near you work on pages
4-6

30. 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.

31. Elastic or Inelastic Demand:
Elastic-
 Demand is very sensitive to a
change in price
 (You will by less of a good after a
small price increase)
Inelastic-
 Demand that is not very sensitive
to a change in price.
 (You will keep buying no matter
what the price)

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

33. Which goods are Elastic vs.
Inelastic? Explain.
Wireless Speakers
Salt
Fur Coat
A Car
A new pair of Sneakers
A Computer
Prescription Drugs
Diamonds
Peanuts
Gasoline

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

35. # of Close Substitutes
https://www.youtube.com/wa
tch?v=dE3Q3NvN2ZE

36. Hudsucker Proxy:
https://www.youtube.com/watch?v=Ng
3XHPdexNM

37. Necessity v. Luxury-What are your
basic needs?
http://www.today.com/money/1-770-hamburger-glamburger-2D80199722

39. % Of Income Spent on Good/Service
$1100–
http://abcnews.go.com/GMA/american-coffee-habits-spend-
coffee/story?id=16923079

40. Are they Habit-Forming Goods?
Govts tend to place ‘sin
taxes’ on inelastic goods
to Limit consumption

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. Price 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: Measure consumers
responsiveness of demand

43. Elasticity Ratio:
measurement of the degree of response of
a change in quantity demanded relative to
to a change in price.
Elasticity ratio=
% change in quantity demanded
% change in price
=
% change in Q
% change in P

44. NEED TO KNOW FORMULA:
Elasticity ratio=
% change in quantity demanded
% change in price
=
% change in Q
% change in P
Percentage Change = Original Number - New Number
Original Number

45. 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

46. 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

47. 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

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

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

51. PERFECTLY INELASTIC:
No change in the quantity demanded
when price changes.
Example:
Life saving
medicine

52. Types of Demand Elasticity
Price
($)
2 4 6 8 10 12
Quantity
Relatively elastic
Perfectly inelastic
Perfectly elastic
Relatively inelastic
14
10
8
6
12
4
2
0

53. Supply and Demand Review
https://www.youtube.com/watch?v=g9aDizJpd_s