DEMAND. Demand Demand is the desire to have some good or service and the ability to pay for it. The law of demand states that when the PRICE of a.

DEMAND

DemandDemand is the desire to have some

good or service and the ability to pay for it.

The law of demand states that when the PRICE of a good or service GOES DOWN, consumers buy MORE, meaning demand increases.

If price goes UP, demand should DECREASE.

The Big Bang Theory 5x05 - The Sword - YouTube

Demand Curve

Pt.Price

of DVDs

Quantity Demande

d

A $30 0

B $25 1

C $20 2

D $15 3

E $10 4

F $5 50

Quantity

Price

1 2 4 53

5

15

20

10

25

30

A

B

C

D

E

F

DEM

AND CU

RVE

Other TermsDue to the law of diminishing

marginal utility, people will only buy additional goods at a given time if price declines.

Other TermsThe Income Effect – the change in the

amount a consumer will buy because their purchasing power of their income changes.

The Substitution Effect – a change in the amount that consumers will buy because they will buy substitute goods instead.

Changes in DemandChange in Quantity Demanded is an

INCREASE or DECREASE in the amount demanded because of a change in PRICE.

Change in Demand is when something prompts consumers to buy DIFFFERENT AMOUNTS of a good at every price.

My Life as a Mighty Mito Mamma: Crashes and Supply and Demand

Quantity

Price

A

B

C

D

E

F

Change in Quantity Demand

Moves along the curve

Quantity

Price

A

B

C

D

E

F

Change in Demand

B

C

D

E

F

A

Shifts left or right

Terms Individual Demand Curve – the demand

for an individual in a specific market.

Market Demand Curve – the total demands of all individuals in a given market.

These numbers should be bigger.

TermsNormal Goods – goods consumers

demand more of when their income rises.

Inferior Goods – goods that consumers demand more of when their income falls.

Demand ChangesChange in quantity demanded is a

change in PRICE or QUANTIY. This will cause you to move along the curve, up/down.

Change in demand meanwhile is a change in the AMOUNT YOU BUY. This means the curve will shift to the left or to the right. There are six factors that influence this.

6 Factors for

Change in Demand

ComplementsComplements are goods that

are used together, so that a rise in demand in one good will increase the demand for the other good.

If a price change occurs for the complement, it will affect the demand for the original item.

SubstitutesSubstitutes are goods/services

that can be used in place of another good or service.

If the price of a substitute changes, people may be more/less inclined to get the original item.

Examples Pepsi or Coca Cola

Ordering Pizza or Chinese for dinner

Consumer Expectations If people believe that the

price of a good or service will change in the future, that may impact their decision to buy then or now.

Examples Cars

Gas

Tickle-Me-Elmo

Consumer TastesPeople’s tastes change overtime!

When goods are more popular, people demand more of it.

When goods lose popularity, people have less demand for it.

Advertising influences people’s tastes.

http://www.youtube.com/watch?v=R55e-uHQna0

Market SizeThe size of the market is based

on the number of consumers.

If people leave a region, the market size will decrease meaning the curve will shift to the left and vice versa.

Example People leaving Buffalo has caused a smaller

market size.

More people moving to Florida and Texas has created larger market sizes in these states.

IncomePeople’s ability to buy certain

goods is affected by their income.

If their income changes, then their ability to buy certain goods will change.

Less money means the curve will shift left, more money will shift the curve to the right.

More money you can buy _________ goods.

Less money you will buy __________ goods.

NORMAL

INFERIOR

Elasticity of DemandElasticity of demand is how responsive

consumers are to price changes.

Elastic demand – quantity demanded will change greatly as price changes.

Inelastic demand – quantity demanded will change little as price changes.

Elastic Demand

0Quantity

Price

10

20

40

50

30

5

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10

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30

A

BC

DE

F

DEMAND CURVE

When demand is elastic, prices will not change much, but quantity demanded will change.

Inelastic Demand

0Quantity

Price

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B

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F

DEM

AN

D C

UR

VE

When demand is in elastic, prices will change a lot, but quantity demanded will not change much.

Factors of ElasticityFactors of elasticity are…1. Substitutes of Goods or Services

Goods/services with few/no substitutes are inelastic as you have to pay regardless to get that item.

The more substitutes, the more elastic demand is.

2. Proportion of Income

3. Necessity or Luxury Needs are inelastic; you’ll typically pay higher

prices to satisfy these, but luxuries are elastic.