Ch. 4.2 Notes: Factors Affecting Demand

I. 2 Graphs explaining why we buy more…..

A. Change in Quantity Demand = price down

we buy more

1. Why?

a. Income Effect = it’s cheaper and

you can afford it now

b. Substitution Effect = as price goes

down, people will buy that product

over other products

$4.99 $4.99

$2.99

X

B. Change in Demand = price same but we buy more 1. Why? a. consumer tastes changes = advertising b. Our income goes up…… i. Normal Goods = Income up,buy more ii. Inferior Goods = Income down, buy more

c. prices of other products change ……

i. Substitutes = items that replace each other * Ex.

Ex. If the price of boxers increase, what

happens to the demand of briefs?

ii. Complements = items that are used

together

Ex. If the price of golf clubs increase to $500 each, what happens to the demand of golf balls?

d. Change in expectations = when we foresee something in the future and we buy more now * Ex.

Sales of Guns Soar in U.S. as Nation Weighs Tougher Limits

• http://www.mediaza.com/MIDir/portalinfo/PIMedia.asp?codigo=130993&panel=-1&subpanel=140 = magazine ad rates