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Demand Shifts

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Law of Demand Demand Curves shift when quantity demanded changes –Causes Income –Normal good –Inferior good Consumer expectations Population Consumer tastes and advertising

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Law of Demand Related Goods can also shift –Complements –Substitutes

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Elasticity Elasticity of Demand –A measure of how consumers react to a change in price Inelastic- demand is not sensitive to a change in price Elastic- demand is very sensitive to a change in price

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Elasticity Elasticity = % change in quantity demanded % change in price % change in price Percentage change = original number-new number original number-new number original number X100 original number X100 If elasticity is less than 1- inelastic If elasticity is greater than 1- elastic

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Elasticity Factors affecting elasticity –Available of substitutes –Relative importance –Necessities vs. luxeries –Change over time Elasticity and revenue –P. 96

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Assignment Use the same product that was used for the demand shift assignment Come up with 5 different prices of your product Poll 20 people about if they would be willing to buy your product at the 5 prices Create a demand schedule and demand curve Calculate the elasticity of your product –How would this elasticity affect the revenue of your product?

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Chapter 4 The Law of Demand.

Chapter 4 The Law of Demand.

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