1. Coach Ramsey is Demand
September 9, 2008

2. What is Demand?
The desire to own something and the ability to pay for it
Just because Coach Ramsey wants a brand new car does not mean he has demand for it. Why not?

3. Law of Demand
States that consumers buy more of a good when price decreases and less of a good when the price increases
Quantity
Demanded
Quantity
Demanded
Price
Price

4. Law of demand is result of 2 overlapping patterns of behavior:
Substitution Effect  takes place when a consumer a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good
Income Effect  the change in consumption resulting from a change in real income

5. Demand Schedules
A table that lists the quantity of a good a person will buy at each different price
Price
Q Demanded
1.00 14
3.00 12
5.00 10
6.00 7
8.00 4
10.00 1

6. Demand Curve P 14 12 10
Demand = 8 6 4 2 2 4 Qd 6 8 10 12 14

7. More Demand Stuff

8. When looking at demand curve, we assumed nothing but price of movie tickets changed
Known as ceteris paribus
 all other things held constant

9. What Causes Shifts?
Income
A. Normal Goods
B. Inferior Goods

10. Consumer Expectations -Future price will rise, demand rises
-Future price will fall, demand falls
*Current demand for a good is positively related to its expected future price

11. Consumer Tastes & Advertising
Population
Consumer Tastes & Advertising
Prices of Related Goods
Complements
Substitutes

12. P 14 12 10 8 6 4 2 2 4 Qd 6 8 10 12 14

13. Elasticity of Demand

14. What is Elasticity of Demand?
A measure of how consumers react to a change in price
Inelastic Demand vs. Elastic Demand

15. Calculating Elasticity
% Change in Qd =
EOD
% Change in Price

16. If EOD > 1 , then we would consider demand to be elastic
If EOD < 1 , then we would consider demand to be inelastic
If EOD = 1 , then we would consider demand to be unitary elastic

17. Factors Affecting Elasticity
Availability of Substitutes
Relative Importance
Necessities versus Luxuries
Change over time

18. Elasticity and Revenue
Total Revenue  amount a company receives by selling its goods
Total Revenue and Elastic Demand
Total Revenue and Inelastic Demand