THE DEMAND CURVE AND ELASTICITY OF

DEMAND

Chapter 7 Section 2

DEMAND VS. QUANTITY DEMANDED

Demand is the actual curve that shows what

buyers are willing to buy at a range of prices

Quantity Demanded is the number of buyers

willing to buy something at a specific price

GRAPHING A DEMAND CURVE

1st you need a

demand schedule

Demand Schedule:

table showing

quantity demanded

at different possible

prices

Demand for Burgers

Price $ Quantity

Demanded

$1 100

$2 80

$3 60

$4 40

$5 20

$6 0

GRAPHING A DEMAND CURVE CONT.

2nd set up the

graph

Horizontal (x) axis

is your quantity

demanded

Vertical (y) axis is

your price

0

1

2

3

4

5

6

7

0 20 40 60 80 100

Demand for Burgers

DPR

ICE

$

Quantity Demanded

GRAPHING A DEMAND CURVE CONT.

3rd plot the

points from your

demand

schedule on

your graph

0

1

2

3

4

5

6

7

0 20 40 60 80 100

Demand for Burgers

DP

RIC

E $

Quantity Demanded

FINISHED PRODUCT

Demand Curve: downward sloping line that

shows various quantities demanded at

different prices

CHANGES IN DEMAND

What customers want to buy, and what they are

willing to pay changes due to many factors:

Changes in population

Changes in income

Changes in tastes/preferences

Price of substitutes

Price of complementary goods

CHANGES IN DEMAND

A change in demand (NOT Quantity Demanded) means a change in the demand curve, causes the curve to shift right or left

Increase in Demand Shift to the right

Decrease in Demand Shift to the left

CHANGES IN POPULATION

As population increases, demand increases

As population decrease, demand decreases

CHANGES IN INCOME

As income increases, demand increases

As income decreases, demand decreases

CHANGES IN TASTES

If something becomes a fad, demand increases

If something loses popularity, demand

decreases

PRICE OF SUBSTITUTES

If the price of a substitute decreases, demand

for original product decreases

If price of a substitute increases, demand

increases

PRICE OF COMPLEMENTARY GOODS

If the price of a complement increases,

demand decreases

If the price of a complement decreases,

demand increases

CONSUMER EXPECTATIONS

Consumers will change their buying behavior based on what they think will happen

If they think the price will go up soon, they will buy more now and demand will increase

If they think the price will decrease soon, they will wait until the price decrease and demand will decrease

THE PRICE ELASTICITY OF DEMAND

Elasticity: concept dealing with

consumers’ responsiveness to an

increase or decrease in price

Price elasticity of demand:

concept that deals with how much

demand varies according to a

change in price

ELASTIC DEMAND

Situation in which the rise or fall of a product’s

price greatly affects the quantity demanded

that consumers are willing to buy

INELASTIC DEMAND

Situation in which a product’s price change has

little affect on the quantity demanded

WHAT DETERMINES PRICE ELASTICITY

3 factors

Existence of substitutes

Portion of budget spent on a item

time to adjust