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Objectives Explain the concept of demand Analyze a demand curve Identify factors that affect demand Describe what is meant by price elasticity of demand What is Demand Demand The willingness and ability to buy a given good or service The relationship between the price and quantity demanded for a good or service Quantity Demanded – the amount of goods and services purchased at a given price Law of Demand Law of Demand – there is an inverse relationship between the price of a good and the quantity buyers purchase Price and quantity demanded move in opposite directions When price goes up the quantity demanded decreases When price goes down the quantity demanded increases Demand Schedule Demand schedule is a table that lists the quantity of a good or service consumers purchase at various possible prices Price Quantity Demanded $5 25 $7.50 20 $10 15 $12.50 10 $15 5 Demand Curve The same information can also be illustrated as a demand curve, in which the quantities demanded are placed on a graph with a line connecting all of the points on the graph This allows you to move along the line and find the quantity demanded by buyers at possible selling prices Demand Curve Demand Shifters Factors that will cause supply to move the curve’s position in either direction – left or right Population People moving in or out of a market Consumer tastes Price expectations Consumers may be waiting for the product to go on sale Demand Shifters Factors that will cause supply to move the curve’s position in either direction – left or right Income People willing to spend more as income increases Change in price of substitute goods If price of a substitute good (example – different brand), consumer may buy the substitute. Also applies to goods that are the same in some way and one may be used in place of the other. A price change in one affects the demand for the other Demand Shifters Factors that will cause supply to move the curve’s position in either direction – left or right Change in price of complementary goods Goods that are used together Demand moves in the same direction Difference Between Changes in Quantity Demanded and Changes in Demand Change in quantity demanded results solely from a change in price It is a movement between points along a stationary demand curve This change assume that all other demand shifter factors remain the same (no change population, consumer tastes, etc) Difference Between Changes in Quantity Demanded and Changes in Demand Difference Between Changes in Quantity Demanded and Changes in Demand Change in demand An increase (rightward shift) or a decrease (leftward shift) of the demand curve. Results from the demand shifters (previously discussed) Difference Between Changes in Quantity Demanded and Changes in Demand Price Elasticity of Demand Price Elasticity of Demand – Difference in quantity demanded compared to difference in price Elastic demand – given change in price causes a relatively larger change in quantity demanded Inelastic demand – given change in prices causes a relatively smaller change in quantity demanded Elastic Demand Inelastic Demand Questions? Demand is the __________ and __________ to buy a given good or service. A. B. C. D. passion . . . desire willingness . . . ability need . . . opportunity motivation . . . determination Questions? Demand is the __________ and __________ to buy a given good or service. A. B. C. D. passion . . . desire willingness . . . ability need . . . opportunity motivation . . . determination Questions? The law of demand states that price and quantity demanded move in __________ directions. A. B. C. D. Similar Opposite Parallel Identical Questions? The law of demand states that price and quantity demanded move in __________ directions. A. B. C. D. Similar Opposite Parallel Identical Questions? A demand __________ is a graphic representation of the law of demand. A. B. C. D. Schedule Curve Projection Model Questions? A demand __________ is a graphic representation of the law of demand. A. B. C. D. Schedule Curve Projection Model Questions? If consumers expect the price of a good to increase in the near future then immediate demand for that good will be __________. A. B. C. D. Stopped Increased Decreased Unchanged Questions? If consumers expect the price of a good to increase in the near future then immediate demand for that good will be __________. A. B. C. D. Stopped Increased Decreased Unchanged Questions? If there is an increase in __________ then there will be an increase in the demand for most goods. A. B. C. D. Consumer price Production cost Quantity supply Consumer income Questions? If there is an increase in __________ then there will be an increase in the demand for most goods. A. B. C. D. Consumer price Production cost Quantity supply Consumer income Questions? An economic downturn can cause the demand curve to __________. A. B. C. D. Shift to the left Shift to the right Remain unchanged Be a vertical line Questions? An economic downturn can cause the demand curve to __________. A. B. C. D. Shift to the left Shift to the right Remain unchanged Be a vertical line Questions? All of the following are examples of complementary goods EXCEPT: A. B. C. D. cars and tires Pepsi and Coke hot dogs and buns peanut butter and jelly Questions? All of the following are examples of complementary goods EXCEPT: A. B. C. D. cars and tires Pepsi and Coke hot dogs and buns peanut butter and jelly Questions? All of the following are examples of substitute goods EXCEPT: A. B. C. D. butter and margarine car and motorcycle oil and natural gas toothpaste and toothbrush Questions? All of the following are examples of substitute goods EXCEPT: A. B. C. D. butter and margarine car and motorcycle oil and natural gas toothpaste and toothbrush Questions? If a change in price causes a relatively small change in the quantity demanded then the demand is __________. A. B. C. D. Elastic Shifted Inelastic Controlled Questions? If a change in price causes a relatively small change in the quantity demanded then the demand is __________. A. B. C. D. Elastic Shifted Inelastic Controlled Questions? If a change in price causes a relatively large change in the quantity demanded then the demand is __________. A. B. C. D. Elastic Fixed Inelastic Intolerant Questions? If a change in price causes a relatively large change in the quantity demanded then the demand is __________. A. B. C. D. Elastic Fixed Inelastic Intolerant