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Demand Chapter 4.

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Presentation on theme: "Demand Chapter 4."— Presentation transcript:

1 Demand Chapter 4

2 Demand The WILLINGNESS and ABILITY of buyers to purchase different quantities of a good at different prices during a specific time period. Market – any place where people come together to buy or sell goods or services

3 Law of Demand Law of demand states that as the price of a good increases, the quantity demanded of the good decreases and that as the price of a good decreases, the quantity demanded of the good increases.

4 Law of diminishing marginal utility
A law stating that as a person consumes additional units of a good, eventually the utility of the good decreases

5 Law of Demand in Numbers and Pictures
Demand schedule – numerical representation of the law of demand Demand curve – the graphical representation of the law of demand

6 The Demand Curve Shifts

7 Factors that cause demand curve to shift:
Income – Normal good Inferior good Neutral good Preferences

8 Factors that cause demand curve to shift:
Prices of related goods Substitutes Complements Numbers of buyers Future Price

9 What causes a change in Quantity Demanded
Price There is a difference between demand and quantity demanded

10

11 Elasticity of Demand The relationship between the percentage change in quantity demanded and the percentage change in price It measures the relationship between price and the quantity demanded

12 Elasticity of Demand ELASTIC DEMAND exists when the percentage change in quantity demanded is greater than the percentage change in price INELASTIC DEMAND exists when the percentage change in quantity demanded is less than the percentage change in price UNIT -ELASTIC DEMAND exists when the percentage change in quantity demanded is the same as the percentage change in price

13 What determines elasticity
Number of substitutes Luxuries versus Necessities Percentage of Income Spent on the good Time

14 Relationship between elasticity and revenue
Elastic Demand + Price Increase = Total Revenue Decrease Elastic Demand + Price Decrease = Total Revenue Increase Inelastic Demand + Price Increase = Total Revenue Increase

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