Download Elasticity of demand

CHAPTER 4
Demand
4.1 The Demand Curve
4.2 Elasticity of Demand
4.3 Changes in Demand
4.1 THE DEMAND CURVE
Learning Objectives
LO1 Explain the law of demand.
LO2 Interpret a demand schedule and a
demand curve.
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CHAPTER 4
Key Terms
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demand
law of demand
marginal utility
law of diminishing
marginal utility
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demand curve
quantity demanded
individual demand
market demand
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CHAPTER 4
Demand
 Demand indicates how much of a product
consumers are both willing and able to buy
at each price during a given period, other
things constant.
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CHAPTER 4
Law of Demand
 The law of demand says that quantity
demanded varies inversely with price, other
things constant.
 The higher the price, the smaller the
quantity demanded.
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CHAPTER 4
Law of Demand
 Demand, wants, and needs
 Substitution effect
 Income effect
 Diminishing marginal utility
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CHAPTER 4
Demand Schedule
and Demand Curve
 Demand vs. quantity demanded
 Individual demand and market demand
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CHAPTER 4
Demand Schedule
and Demand Curve for Pizza
Figure 4.1
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CHAPTER 4
Market Demand for Pizza
Figure 4.2
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CHAPTER 4
4.2 ELASTICITY OF DEMAND
Learning Objectives
LO1 Compute the elasticity of demand, and
explain its relevance.
LO2 Discuss the factors that influence elasticity
of demand.
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CHAPTER 4
Key Terms
 elasticity of demand
 total revenue
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CHAPTER 4
Computing the Elasticity of Demand
 Elasticity of demand measures how
responsive quantity demanded is to a price
change.
Elasticity of demand
=
Percentage change in quantity demanded
Percentage change in price
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CHAPTER 4
The Demand for Pizza
Figure 4.3
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CHAPTER 4
Elasticity Values
 Elastic
 Unit elastic
 Inelastic
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CHAPTER 4
Elasticity and Total Revenue
 Total revenue is price multiplied by the
quantity demanded at that price.
 Knowing a product’s elasticity can help
businesses with their pricing decisions.
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CHAPTER 4
Determinants of Demand Elasticity
 Availability of substitutes
 Share of consumer’s budget spent on the
good
 Duration of the adjustment period
 Some elasticity estimates
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CHAPTER 4
Demand Becomes
More Elastic Over Time
Figure 4.4
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CHAPTER 4
Selected Elasticities of Demand
Figure 4.5
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CHAPTER 4
4.3 CHANGES IN DEMAND
Learning Objectives
LO1 Identify the determinants of demand, and
explain how a change in each affects the
demand curve.
LO2 Distinguish between the money price and
the time price of a good.
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CHAPTER 4
Key Terms
 tastes
 movement along a given demand curve
 shift of a demand curve
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CHAPTER 4
Changes That Can
Shift the Demand Curve
 Changes in consumer income
 Changes in the prices of related goods
 Changes in the size or composition of the
population
 Changes in consumer expectations
 Changes in consumer tastes
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CHAPTER 4
An Increase in the Market Demand
for Pizza
Figure 4.6
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CHAPTER 4
A Decrease in the Market Demand
for Pizza
Figure 4.7
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CHAPTER 4
Movement Along a Demand Curve
Versus a Shift of the Curve
 A change in price, other things constant,
causes a movement along a demand curve,
changing the quantity demanded.
 A change in one of the determinants of
demand other than price causes a shift of a
demand curve, changing demand.
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CHAPTER 4
Role of Time in Demand
 money price
 time price
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CHAPTER 4