Demand 4.1 4.1The Demand Curve 4.2 4.2Elasticity of Demand 4.3 4.3Changes in Demand CHAPTER 4.

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Demand The Demand Curve Elasticity of Demand Changes in Demand CHAPTER 4

© 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Explain the law of demand. LO2Interpret a demand schedule and a demand curve. CHAPTER 4 4.1THE DEMAND CURVE 2

© 2013 Cengage Learning. All Rights Reserved. Key Terms  demand  law of demand  marginal utility  law of diminishing marginal utility  demand curve  quantity demanded  individual demand  market demand CHAPTER 4 3

© 2013 Cengage Learning. All Rights Reserved. Demand  Demand indicates how much of a product consumers are both willing and able to buy at each price during a given period, other things constant. CHAPTER 4 4

© 2013 Cengage Learning. All Rights Reserved. Law of Demand  The law of demand says that quantity demanded varies inversely with price, other things constant.  The higher the price, the smaller the quantity demanded. CHAPTER 4 5

© 2013 Cengage Learning. All Rights Reserved. Law of Demand  Demand, wants, and needs  Substitution effect  Income effect  Diminishing marginal utility CHAPTER 4 6

© 2013 Cengage Learning. All Rights Reserved. Demand Schedule and Demand Curve  Demand vs. quantity demanded  Individual demand and market demand CHAPTER 4 7

© 2013 Cengage Learning. All Rights Reserved. Demand Schedule and Demand Curve for Pizza CHAPTER 4 Figure 4.1 8

© 2013 Cengage Learning. All Rights Reserved. Market Demand for Pizza CHAPTER 4 Figure 4.2 9

© 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Compute the elasticity of demand, and explain its relevance. LO2Discuss the factors that influence elasticity of demand. 4.2ELASTICITY OF DEMAND CHAPTER 4 10

© 2013 Cengage Learning. All Rights Reserved. Key Terms  elasticity of demand  total revenue CHAPTER 4 11

© 2013 Cengage Learning. All Rights Reserved. Computing the Elasticity of Demand  Elasticity of demand measures how responsive quantity demanded is to a price change. Elasticity of demand = Percentage change in quantity demanded Percentage change in price CHAPTER 4 12

© 2013 Cengage Learning. All Rights Reserved. The Demand for Pizza CHAPTER 4 13 Figure 4.3

© 2013 Cengage Learning. All Rights Reserved. Elasticity Values  Elastic  Unit elastic  Inelastic CHAPTER 4 14

© 2013 Cengage Learning. All Rights Reserved. Elasticity and Total Revenue  Total revenue is price multiplied by the quantity demanded at that price.  Knowing a product’s elasticity can help businesses with their pricing decisions. CHAPTER 4 15

© 2013 Cengage Learning. All Rights Reserved. Determinants of Demand Elasticity  Availability of substitutes  Share of consumer’s budget spent on the good  Duration of the adjustment period  Some elasticity estimates CHAPTER 4 16

© 2013 Cengage Learning. All Rights Reserved. Demand Becomes More Elastic Over Time CHAPTER 4 17 Figure 4.4

© 2013 Cengage Learning. All Rights Reserved. Selected Elasticities of Demand CHAPTER 4 18 Figure 4.5

© 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Identify the determinants of demand, and explain how a change in each affects the demand curve. LO2Distinguish between the money price and the time price of a good. 4.3CHANGES IN DEMAND CHAPTER 4 19

© 2013 Cengage Learning. All Rights Reserved. Key Terms  tastes  movement along a given demand curve  shift of a demand curve CHAPTER 4 20

© 2013 Cengage Learning. All Rights Reserved.  Changes in consumer income  Changes in the prices of related goods  Changes in the size or composition of the population  Changes in consumer expectations  Changes in consumer tastes Changes That Can Shift the Demand Curve CHAPTER 4 21

© 2013 Cengage Learning. All Rights Reserved. An Increase in the Market Demand for Pizza CHAPTER 4 22 Figure 4.6

© 2013 Cengage Learning. All Rights Reserved. A Decrease in the Market Demand for Pizza CHAPTER 4 23 Figure 4.7

© 2013 Cengage Learning. All Rights Reserved. Movement Along a Demand Curve Versus a Shift of the Curve  A change in price, other things constant, causes a movement along a demand curve, changing the quantity demanded.  A change in one of the determinants of demand other than price causes a shift of a demand curve, changing demand. CHAPTER 4 24

© 2013 Cengage Learning. All Rights Reserved. Role of Time in Demand  money price  time price CHAPTER 4 25