Demand
The various quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time.
The Law of Demand
People will buy more of something at lower prices than at higher prices. This is shown on a demand schedule.
Demand Schedule
A listing of how much of an item an individual is willing to purchase at each price. This data is shown graphically using a demand curve.
Demand Curve
A graph that shows how much of a good or service an individual will buy at each price.
the decisions consumers make regarding price and quantity.
The slope of demand curve is determined by...
Buying power
As income or price changes, so does the relative value of consumers resources.
income effect or price effect
Buying power changes depending on what two effects?
Income effect
The impact that a change in a consumer's income has on buying power.
increase
If income increases, buying power will...
decrease
If income decreases, buying power will...
Price Effect
The impact that a change in a price of product has on consumers buying power
buying power decreases
If prices increase.. buying power...
buying power increases
If prices decrease buying power...
Substitution effect
The impact that a price increase has on consumer's decision to purchase an item or to substitute that item for a product that meets the same need or want but at a lower cost.
Substitutes
Two products that satisfy similar wants or needs and are often traded for each other when the price of one rises over the other.
maintain their buying power
Consumers will substitute items in order to...
change
A demand curve represents______ ______ of demand
movement along demand
A change in quantity demanded due to a price change is represented by.
shift it's position
A change in demand requires the entire curve to...
Right
A demand curve shifts to the___ for an increase in demand
Left
A demand curve shifts to the ___ for a decrease in demand
change at all possible prices
A shift in the demand curve will cause the quantity demand to....
price effect's
A change in demand is never due to the...
C is a decrease in demand and B is an increase in demand.
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C A B
If curve A is the original level of demand, what do curves B and C represent?
Seven factors that cause a change in demand
Change in income, market size, consumer taste, consumer expectations, weather or season.
Availability of substitutes and complementary goods
Change in income
If the amount of money that consumers have changes, the demand curves for various products will shift
Change in market size
If the population changes, demand for various goods and services will also change, causing their corresponding demand curves to shift.
Change in consumer tastes
As the preferences of consumers change the demand curves for corresponding products will shift.
Change in consumer expectations
If people expect prices to change in the near future, demand curves will shift in anticipation of the change.
Availability of substitutes
If the number of substitutes changes, the number of choices that consumers have will also change. This will cause the demand curve for the remaining products to shift.
Availability of Complementary goods
Demand for a good with a compliment is often directly related to the demand for complementary goods.
Change in the weather or season
Certain products are seasonal causing their demand curves to shift when the seasons change.
Complementary Goods
Goods that are often used together
Elasticity of Demand
a measure of how responsive consumers are to price changes.
elastic or inelastic
Regarding elasticity, demand can be ________ or _______
Elastic demand
Price changes causes a large change in quantity demanded
Inelastic demand
Price change causes little or no change in quantity demanded
Total revenue formula
Mathematical formula used to determine if the product is elastic or inelastic.
inelastic
If a price increase causes an increase in total revenue then the product is...
elastic
If a price increase causes a decrease in total revenue then the product is...
unit elastic
If a price increase causes no change in total revenue, demand is ...
4 factors that determine elasticity
Availability of substitute goods or services, Proportion of income, necessities vs luxuries, time.
Availability of substitute goods or services
If there is a substitute for a product that had a price increase, the change in quantity demanded for the higher priced product will be large, causing demand to be elastic
Proportion of income
The greater the percentage of people's budgets spent on a product, the more elastic the products demand tends to be.
necessities vs luxuries
The greater demand for a luxury, the less demand for a necessity
Time
The longer people have to adjust to a price change, the more elastic a product is, because people will have ___ to find substitutes.