1. Demand

2. Demand
Shows amount of product that consumers and willing and able to purchase
Demand Curve (Price by Quantity)
Law of Demand
Diminishing marginal Utility
Determinants of Demand

3. Changes in Demand Preferences # of Buyers Incomes
Price of related good
Substitute good
Complementary good
Consumer Expectation
Changes in Quantity demanded

4. Price Elasticity of Demand
Measures buyers’ responsiveness to price changes
Elastic demand
Sensitive to price changes
Large change in quantity
Inelastic demand
Insensitive to price changes
Small change in quantity
The law of demand tells us that consumers will respond to a price decrease by buying more of a product (other things remaining constant), but it does not tell us how much more. The degree of responsiveness or sensitivity of consumers to a change in price is measured by the concept of price elasticity of demand.
If demand is elastic, there is a large change in quantity demanded even when price changes by a small amount. When demand is inelastic, there is a very small change in quantity demanded even when there is a large change in price.
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5. 12/1/2018

6. Price Elasticity of Demand Formula
Formula for price elasticity of demand
Ed =
percentage change in quantity
demanded of product X
percentage change in price
of product X
Quantitative measure of elasticity, Ed = percentage change in quantity/ percentage change in price.
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7. Determinants of Price Elasticity of Demand
Substitutability
More substitutes, demand is more elastic
Proportion of income
Higher proportion of income, demand is more elastic
With more substitutes available, consumers have more alternative options, so when there is a change in price, there is a greater percentage change in quantity demanded, making the demand more elastic. The broader the definition of the market, the more elastic the demand. With a more narrow definition of the market, demand is more inelastic.
The greater the proportion of income needed to buy the good the more elastic the demand. Consumers will be more sensitive to changes in prices because the price change can result in thousands of dollars difference.
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8. Determinants of Price Elasticity of Demand
Luxuries versus necessities
Luxury goods, demand is more elastic
Time
More time available, demand is more elastic
Since luxuries are goods that consumers can go without, they will change the amount they purchase by a greater amount even if the price changes by a small amount.
It takes time to alter the amount being purchased, so the more time available, the more elastic the demand. A person doing their Christmas shopping on Christmas Eve has a very inelastic demand because he/she doesn’t have the time to look around for alternative purchases.
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9. Types of good Normal Good- demand increases as income increases
Inferior Good- demand decreases as income increases