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Change in Demand a) Normal Goods • Goods for which demand increases as income increases b) Inferior goods • Goods for which demand decreases as income increases II) Changing Attitudes • A) Change in attitude leads to a change in demand 1) Can be because of social mores/fashion 2) Advertising III) Changing Substitutes • A) Demand for substitute products is related 1) Price of butter rises, demand for margarine will increase. 2) Substitutes are similar enough that one can replace the other IV) Changing Complementary Goods • A) A decrease in price of one good increases demand in the other – 1) Hot dog prices drop, demand for hot dog buns will increase. – 2) These are goods that are almost exclusively used together. V) Change in Demand vs. Change in Qty. demanded A P P B D1 D QD QD D2 VI) Elasticity of Demand • A) Degree of change in quantity consumed compared to change in price. – 1) Product with high elasticity shows great change. – 2) Product with low elasticity shows little change. b) Price Elasticity of Demand =Percentage Change in Quantity Demanded Percentage Change in Price 1) If greater than 1, it’s price elastic P D QD 2) If less than 1, it’s price inelastic P D QD 3) If equal to 1, it’s unitary price elasticity P D QD
