Price is raised and Demand decreases.
Change in Quantity Demanded Change in Quantity Demanded due to a change in Price. (d on the DD curve)
The Demand Curve Stays the same.
Change in Demand Consumer willing to buy more or less with no change in price.
The Demand Curve moves either up or down (left or right).
Increase in Demand Demand Curve (DD) moves to the right. More Quantity at same price
Decrease in Demand Demand Curve (DD) moves to the left. Less Quantity at same price
Need for a revised Demand Schedule
Income Effect Change in a consumer's real income when the price of a product changes.
Positive - price drops, consumer has more money to buy more product or other products
Negative - price increase, consumer has less money to buy less product.
Definition - The change in quantity demanded caused by change in a consumer's real income when the price of a product changes.
Substitution Effect change in quantity demanded due to a change in the price of the product.
Beef prices increase, consumers will buy more chicken and fish instead.
Demand for beef down, demand for chicken & fish up.
Beef price drop, consumer will buy more beef and buy less chicken and fish.
Demand for beef up, demand for chicken & fish up.
Change in Demand:
Income increase in income causes increase in demand, decrease in income cause decrease in demand.
Change in Consumer Taste Advertising bad publicity changing attitudes
Price of Related Goods - demand increase or decreases with the price of its substitute.
Substitutes - used in place of other products. [butter-margarine]
- Beef prices increase, price of lower cost substitutes: chicken & fish increase.
Complements - used because another product is used. [film-camera]
- Hot Dogs - Hot Dog Buns - Catsup - Mustard, etc.
Marginal Utility Usefulness/satisfaction of one more unit.
Diminishing Marginal Utility Usefulness/satisfaction of one more unit not as great as the previous unit.
Review What is the difference between "Change in Demand" and a "Change in Quantity Demanded".
Topic 12 Elasticity of Demand
Demand Elasticity extent to which changes in price causes changes in quantity demanded.
Response of quantity demanded (dependent variable) to a change in price (independent variable).
Elastic Small change in price causes as large change in quantity demanded.
Inelastic any change in price cause a small or minimal change in quantity demanded.
Specific vs. General Market- Change at one site is very elastic. Change in market price is very inelastic
Gasoline prices changes at one site, consumer go to another.
Receipts = price x quantity = Total Revenue
Total Receipts Test of Demand Elasticity
Elastic Prices & Revenues move in opposite directions.
Inelastic Prices & Revenue move in the same direction
Unit Elastic no change in revenue with a change in price.
Determinants of Demand Elasticity (3)
1. Can the Purchase be delayed
- If it can be delayed it is rather elastic
- If it can not be delayed it is rather inelastic
2. Are adequate Substitutes Available.
- If many substitute available it is rather elastic
- If no substitutes available it is rather inelastic
3. Does the product use a large portion of income?
- If a large portion of income the product tends to be rather elastic
- If a small portion of income the product tend to be rather inelastic.
Knowledge of Demand elasticity important because it lets a business know how a change in price will effect their Revenue.
Demand Elasticity determines future price changes.
Review How do determinants of demand elasticity help classify the demand for a product.
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January 27 1998