DEMAND Defined:  Demand: In economic terms, demand is the amount of a good or service that a consumer is willing and able to buy at all the various possible prices during a given time period.  When represented graphically, DEMAND is the whole curve itself

Quantity Demanded  Quantity Demanded: the amount of a good or service that a consumer is willing and able to buy at each particular price point during a given time period.  When represented graphically, QUANTITY DEMANDED is the individual points on the curve

THE DEMAND CURVE The Demand Curve ALWAYS slopes this way

The Law of Demand  Law of Demand: states that an increase in a good’s price causes a decrease in the quantity demanded; and that a decrease in price causes an increase in the quantity demanded.  In a free-enterprise system, price is the main variable affecting Quantity demanded.

Purchasing Power  Purchasing Power: the amount of money, or income, that people have available to spend on goods and services.  Usually, as one’s purchasing power increases, their Demand will increase for a particular good/service as well.

Determinants of Demand  Determinants of Demand: Factors, OTHER THAN PRICE, that create more or less demand for a product or service.  These will shift the entire demand curve to the Left (less demand) or the Right (more demand).  ***A price change will only change the Quantity Demanded***

Determinants of Demand  Consumer Tastes  Ex. Bands, endorsements, “Going Green”  Number of Consumers (market size)  Embargos, New Technology can create new markets while hurting others. (Cell phones - Landline)

Determinants of Demand  Income  More $ = More likelihood of spending (Beef vs. Steak Problem)  Consumer Expectations  (Expecting a Raise, predicting future prices)  Prices of Related goods  Substitute & Complimentary

Price of Related Goods  Substitute Goods – A consumers tendency to switch to a lower priced, but similar product. (Butter vs. Margarine)  Complementary goods – Goods that are commonly used with other goods (Peanut Butter & Jelly)  ***Only 1 market will experience a Demand curve shift…..the other experiences a price change or Quantity Demanded

Practice  In groups of 2-3, imagine that you are the officers of a school club…..To raise money for your club, you are selling tickets to a dance. Your task is to think of ways to increase ticket sales without lowering the ticket prices…..  Come up with as many ideas as you can think of for ALL FIVE DETERMINATES OF DEMAND to shift the Demand Curve for dance tickets to the Right >

Elasticity of Demand  Elastic Demand - When a small change in price GREATLY Changes the Quantity Demanded  The Demand Curve looks almost horizontal  These goods are Not Necessities  These goods have many substitutes

Elasticity of Demand  Inelastic Demand - When a change in price causes LITTLE or NO change in Quantity Demanded  The Demand Curve looks almost Vertical  These goods are more need based  These goods have few/no substitutes  These goods are very cheap (Salt or Soap)

Price Elasticity of Demand  PEoD =  (%Change in Quantity Demanded)/(%Change in Price)  To Calculate %Change in Quantity Demanded:  [Qdemand(new) - Qdemand(old)] / Qdemand(old)  To Calculate %Change in Price:  [Price(new) - Price(old)] / Price (old)  Price Elasticity deals in Absolute Values

Price Elasticity Practice  Consider the following figures.  PriceQuantity Demanded $9 150 $ What is the Price Elasticity of this Product?

Price Elasticity of Demand  PEoD =  (%Change in Quantity Demanded)/(%Change in Price)  To Calculate %Change in Quantity Demanded:  [Qdemand(new) - Qdemand(old)] / Qdemand(old)  To Calculate %Change in Price:  [Price(new) - Price(old)] / Price (old) ============================= Step 1: [ = -40] / 150 = Step 2: [ = 1] / 9 =.1111 Step 3: ( ) / (.1111) = Answer: is the Elasticity of this good.

Price Elasticity of Demand  * If PEoD > 1 then Demand is Price Elastic (Demand is sensitive to price changes)  * If PEoD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes)