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Transcript
Demand Revisited
SSEMI1: Explain how the Law of
Demand works to determine
production and distribution of goods
and services
Demand Basics
What is demand?
The desire to own something and the ability to
pay for it
What is the Law of Demand?
Economic law that explains consumers will
buy more of a good when prices decrease,
and less of a good when prices increase
What does a demand curve look
like?


Most demand curves
are downward sloping
(rise to the left)
Illustrates Law of
Demand (the quantity
demanded increases
when the price of a
good decreases)
Movements Along Demand Curve


Movements along the
demand curve are
caused by changes in
PRICE
When prices change,
there’s a change in the
quantity demanded
Shifts of the Demand Curve

The demand curve
will shift to the left
when there’s a
decrease in demand

The demand curve
will shift to the right
when there’s an
increase in demand
What causes a shift in the
demand curve?
Income
 Consumer Expectations
 Population/Number of Buyers in a Market
 Consumer Preferences and Advertising
 Prices of Related Goods

Non-Price Determinants of Demand
Relationship
with the
Demand
Curve
Examples
Income (Normal Goods)
Direct
A decline in income decreases the
demand for air travel
Income (Inferior Goods)
Inverse
A decline in income increases the
demand for public transportation.
Consumer Expectations
Direct
Current gas shortage
Population/Number of
Buyers
Direct
An increase in the birthrate increases
the demand for baby clothes
Consumer
Tastes/Preferences and
Advertising
Direct
Prices of Related Goods
(Complements)
Inverse
A higher price for cd players
decreases the demand for cds
Prices of Related Goods
(Substitutes)
Direct
An increase in the price of SUVs
causes increased demand for cars.
What is Elasticity of Demand?
Measures buyers’ responsiveness to price
changes
 Shows how drastically buyers will cut back
(or increase) their demand for a good when
the price rises (or falls)

Inelastic and Elastic Demand
If a consumer will continue to buy a
good/service despite a price increase,
demand is inelastic (unresponsive to price
changes)
 If a consumer will buy much less of a good
after a price increase, the demand for that
good is elastic (responsive to price changes)

Housing Market
When the income in households increases, what
is the likely result?
A The supply curve will shift to the left
B The supply curve will right vertical
C The demand curve will shift to the left
D The demand curve will shift to the right
The graph shows demand and supply curves. What
can be said about the demand between D1 and D2?
A. Demand has decreased
B. Demand has increased
C. This indicates an increased supply
D. This indicates a decreased supply
Which of the following will cause a
movement along the demand curve?
A. A change in the price of a close substitute
B. A change in the price of good X
C. A change in consumer tastes and
preferences for good X
D. A change in consumer income
Assuming steak and potatoes are
complements, a decrease in the price of
steak will
A decrease the demand for steak
B increase the demand for steak
C decrease the demand for potatoes
D increase the demand for potatoes
Assuming that beef and pork are substitutes,
a decrease in the price of pork will cause the
demand curve for beef to
A
shift to the left as consumers switch from
beef to pork
B
shift to the right as consumers switch from
beef to pork
C
remain unchanged because beef and pork
are sold in different markets
D
none of these choices
Myra Worthington, CEO of CompuGlobal
Corporation, complains that the company’s
software products have a very high elasticity of
demand. What is Myra saying?
A
the higher the demand for her product the
lower its price
B
small changes in price result in large
changes in quantity demanded
C
no matter what the price, people want the
same quantity of her product
D
Consumers don’t want her product if she
lowers the price too much