1. Chapter 4
Changes in Demand

2. Demand Shifts
Determinants of Demand – factors that shift our demand curve – to the right or to the left
Shift to the right = increase in demand by the consumers
Shift to the left = decrease in demand by the consumers
5 determinants of demand

3. Determinants of Demand
Consumer tastes and preferences
Market size
Income
Prices of related goods
Consumer expectations

4. Substitute Goods
Goods that can be used to replace the purchase of similar goods when prices rise

5. Complementary Goods Goods that are commonly used with other goods.
Example – peanut butter and jelly

6. Elasticity of Demand
Chapter 4

7. Elasticity of Demand
The degree to which changes in a goods price affect the quantity demanded by consumers.
The demand for a product can be either inelastic or elastic.

8. Elastic Demand
Exists when a small change in a goods price causes a major, opposite change in the quantity demanded.
Not necessary
Available substitute goods
expensive

9. Inelastic Demand
Exists when a change in a goods price has little impact on the quantity demanded.
Necessary good
Few substitute goods available
inexpensive

10. Measuring Elasticity
Easy way to measure the elasticity of an item is through the total revenue test.
Total Revenue – By measuring the total revenue of a business before and after changes in the price, you can determine the elasticity of demand for that product.

11. Measuring Elasticity % change in QD %change in P
Calculate % change by taking the difference of the two numbers and divide it the original starting number!
Example – if QD changes from 12million to 14million
and Price changes from 5 dollars to 3 dollars.
2/12 = .167 = .4175 2/

12. What does your answer mean?
x>1 = elastic
x<1= inelastic
x=1= unit elastic