Understanding Demand: Factors and Elasticity

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2. Chapter Introduction Section 1: What is Demand? Section 2: Factors Affecting Demand Section 3: Elasticity of Demand Visual Summary Chapter Menu

3. Think about the items you bought during the past two months. What influenced your purchases? Did you need the items, or did you buy them because you wanted them? Make a list of the items, and next to each one write why you bought it. Then add for each item whether you would have bought more if the price had been lower, or fewer had the price been higher. Read Chapter 4 to learn how economists interpret your actions. Chapter Intro 1

4. Markets exist when buyers and sellers interact, and market prices are set by the interaction of demand and supply. Chapter Intro 2

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6. Section Preview In this section, you will learn that you express demand for a product when you are willing and able to purchase it. Section 1-Preview

7. Content Vocabulary • demand • microeconomics • market economy • demand schedule • demand curve • Law of Demand • market demand curve Academic Vocabulary • marginal utility • diminishing marginal utility Section 1-Key Terms

8. What is Demand? • Demandfor a product is more than having the desire to own an item. Demand includes the ability and willingness to pay for it. • Microeconomics is the part of economic theory that deals with behavior and decision making by individuals and firms. Section 1

9. An Introduction to Demand Demand is a concept specifying the different quantities of an item that will be bought at different prices. Section 1

10. An Introduction to Demand (cont.) • Demand is central to a market economy. • Demand involves two variables: • Price • Quantity of a specific product at a given point in time The Demand for Compact Digital Discs Section 1

11. An Introduction to Demand (cont.) • A demand scheduleshows the various quantities demanded of a good at all prices that might prevail in the market at a given time. • A demand schedule shown graphically is a demand curve. The Demand for Compact Digital Discs Section 1

12. The Law of Demand There is an inverse relationship between the price of an item and the quantity demanded. Section 1

13. The Law of Demand (cont.) • Higher prices are associated with smaller amounts demanded on most goods or services we buy. This is the Law of Demand. • Quantity demanded varies inversely with its price. • The market demand curve shows quantities demanded by everyone in the market who is interested in the product/service. Individual and Market Demand Curves Section 1

14. Demand and Marginal Utility As we buy more of an item, we get less satisfaction from each additional purchase. Section 1

15. Demand and Marginal Utility (cont.) • Utility is the amount of product satisfaction or usefulness one receives from its use. • Marginal utilityexplains much about demand. • As we use more of a product, we encounter diminishing marginal utility. Section 1

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17. Section Preview In this section, you will learn about the factors that cause changes in demand. Section 2-Preview

18. Content Vocabulary • change in quantity demanded • income effect • substitution effect • change in demand • substitutes • complements Academic Vocabulary • principle • illustrated Section 2-Key Terms

19. Change in the Quantity Demanded Only a change in price can cause a change in quantity demanded. Section 2

20. Change in the Quantity Demanded (cont.) • When only the price changes and all else remains constant, there is a change in the quantity demanded. • Income effect • Substitution effect • A change in quantity demanded is a movement along the original demand curve. Change in the Quantity Demanded Section 2

21. Change in Demand Several factors can cause the demand curve to shift. Section 2

22. Change in Demand (cont.) • Factors other than price can cause a change in demand. • A change in demand results in an entirely new demand curve. Change in Demand Section 2

23. Change in Demand(cont.) • Factors for demand changes • Consumer income • Consumer tastes • Price of related goods • Substitutes • Complements Change in Demand Section 2

24. Change in Demand(cont.) • Expectations • Number of consumers Change in Demand Section 2

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26. Section Preview In this section you will learn about the factors that influence the size of a change in quantity demanded. Section 3-Preview

27. Content Vocabulary • elasticity • demand elasticity • elastic • inelastic • unit elastic Academic Vocabulary • technical • adequate Section 3-Key Terms

28. Elasticity of Demand • An important cause-and-effect relationship in economics is elasticity. Profiles in Economics:Oprah Winfrey Section 3

29. Demand Elasticity When the price of an item changes, the change in quantity demanded can vary a little or a lot. Section 3

30. Demand Elasticity (cont.) • Consumers react to changes in price by changing the quantity demanded. The size of the reaction is demand elasticity. • Demand can be • Elastic—fresh produce • Inelastic—table salt • Unit elastic Demand Elasticity and the Total Expenditures Test Section 3

31. The Total Expenditures Test The total expenditures test is used to estimate the demand elasticity of a product. Section 3

32. The Total Expenditures Test(cont.) • Total expenditures—the price of a product multiplied by the quantity demanded for any point along the demand curve. • Can test for elasticity by observing the change in total expenditures when the price changes. Three results occur: • Elastic demand—an “inverse” relationship between price and expenditures Section 3

33. The Total Expenditures Test(cont.) • Inelastic demand—movement occurs in the same direction • Unit elastic—no change in expenditure • Elasticity and revenues • Raising the price of an inelastic product may help increase revenue. • Raising the price of an elastic product will likely decrease revenue. Section 3

34. Determinants of Demand Elasticity The answers to three questions help determine a product’s demand elasticity. Section 3

35. Determinants of Demand Elasticity(cont.) • Must answer three questions to determine if a demand for a good is elastic or inelastic. • Can the purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income? Determinants of Demand Elasticity Section 3

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37. Law of Demand The Law of Demand states that when the price goes up, quantity demanded goes down. When the price goes down, quantity demanded goes up. VS 1

38. Change in Demand When a change in demand occurs, people want to buy different amounts of a product at the same price. A change in demand can happen for several reasons. VS 2

39. Demand and Elasticity Changes in price and total expenditures help determine the demand elasticity of a product. VS 3

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47. Oprah Winfrey (1954– ) • first woman in history to produce and own her own talk show • first African American woman—and third woman in history—​to own a major television and film studio Profile

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