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Demand

Demand. Ch. 4. What Is the Law of Demand?. As Prices go down quantity demanded goes up. Law of Demand (cont.). As prices go up quantity demanded goes down. Quantity Demanded. The amount of a good or service that will be purchased at a specific price

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Demand

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  1. Demand Ch. 4

  2. What Is the Law of Demand? As Prices go down quantity demanded goes up

  3. Law of Demand (cont.) As prices go up quantity demanded goes down

  4. Quantity Demanded The amount of a good or service that will be purchased at a specific price Quantity demanded (Qd) – is just a point on the curve Only price can change the Qd

  5. Demand Schedules Individual Demand Schedule Market Demand Schedule Price of a slice of pizza Quantity demanded per day Price of a slice of pizza Quantity demanded per day $.50 $1.00 $1.50 $2.00 $2.50 $3.00 5 4 3 2 1 0 $.50 $1.00 $1.50 $2.00 $2.50 $3.00 300 250 200 150 100 50 The Demand Schedule

  6. Market Demand Curve 3.00 2.50 2.00 1.50 1.00 .50 0 Price per slice (in dollars) 200 250 350 300 0 50 100 150 Slices of pizza per day The Demand Curve When reading a demand curve, assume all outside factors, such as income, are held constant. Demand

  7. Shifts in Demand Ceteris paribusis a Latin phrase economists use meaning “all other things held constant.” When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.

  8. What Causes a Shift in Demand? Several factors can lead to a change in demand: 1. Income – Normal Goods & Inferior Goods 2. Population or the number of consumers 3. Consumer expectations

  9. Cont. • 4. Consumer tastes & advertising • 5. Prices of Related goods • Price of a substitute • Price of a complement

  10. What Is Elasticity of Demand? Elasticity of demand is a measure of how consumers react to a change in price.

  11. Inelastic Demand for a good that consumers will continue to buy despite a price increase Consumers are not very sensitive to an increase in price

  12. Elastic Demand for a good that is very sensitive to changes in price A small change in price leads to relatively large change in the Qd

  13. Calculating Elasticity • Elasticity = percentage change in in quantity demanded/ percentage change in price • Or E= % change in Qd/ % change in P • Percentage change = original number – new number/ original number x 100

  14. Values of Elasticity Elasticity is< 1 = inelastic Elasticity is > 1 = elastic Elasticity is “0” = unitary

  15. Factors Affecting Elasticity 1. Availability of Substitutes 2. Relative importance 3. Necessities vs. Luxuries 4. Change over time

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