THE DEMAND CURVE AND ELASTICITY OF DEMAND Chapter 7 Section 2
DEMAND VS. QUANTITY DEMANDED
Demand is the actual curve that shows what
buyers are willing to buy at a range of prices
Quantity Demanded is the number of buyers
willing to buy something at a specific price
GRAPHING A DEMAND CURVE
1st you need a
demand schedule
Demand Schedule:
table showing
quantity demanded
at different possible
prices
Demand for Burgers
Price $ Quantity
Demanded
$1 100
$2 80
$3 60
$4 40
$5 20
$6 0
GRAPHING A DEMAND CURVE CONT.
2nd set up the
graph
Horizontal (x) axis
is your quantity
demanded
Vertical (y) axis is
your price
0
1
2
3
4
5
6
7
0 20 40 60 80 100
Demand for Burgers
DPR
ICE
$
Quantity Demanded
GRAPHING A DEMAND CURVE CONT.
3rd plot the
points from your
demand
schedule on
your graph
0
1
2
3
4
5
6
7
0 20 40 60 80 100
Demand for Burgers
DP
RIC
E $
Quantity Demanded
FINISHED PRODUCT
Demand Curve: downward sloping line that
shows various quantities demanded at
different prices
CHANGES IN DEMAND
What customers want to buy, and what they are
willing to pay changes due to many factors:
Changes in population
Changes in income
Changes in tastes/preferences
Price of substitutes
Price of complementary goods
CHANGES IN DEMAND
A change in demand (NOT Quantity Demanded) means a change in the demand curve, causes the curve to shift right or left
Increase in Demand Shift to the right
Decrease in Demand Shift to the left
CHANGES IN POPULATION
As population increases, demand increases
As population decrease, demand decreases
CHANGES IN TASTES
If something becomes a fad, demand increases
If something loses popularity, demand
decreases
PRICE OF SUBSTITUTES
If the price of a substitute decreases, demand
for original product decreases
If price of a substitute increases, demand
increases
PRICE OF COMPLEMENTARY GOODS
If the price of a complement increases,
demand decreases
If the price of a complement decreases,
demand increases
CONSUMER EXPECTATIONS
Consumers will change their buying behavior based on what they think will happen
If they think the price will go up soon, they will buy more now and demand will increase
If they think the price will decrease soon, they will wait until the price decrease and demand will decrease
THE PRICE ELASTICITY OF DEMAND
Elasticity: concept dealing with
consumers’ responsiveness to an
increase or decrease in price
Price elasticity of demand:
concept that deals with how much
demand varies according to a
change in price
ELASTIC DEMAND
Situation in which the rise or fall of a product’s
price greatly affects the quantity demanded
that consumers are willing to buy
INELASTIC DEMAND
Situation in which a product’s price change has
little affect on the quantity demanded