“Demand”

DemandThe desire, ability, and willingness to buy a product.

Demand ScheduleA listing that shows the quantity demanded at all prices.

Demand Curve• Graphing the demand schedule.

• Downward slope moving from left to right.

Law of DemandWhen the price goes down, demand goes up.

Change in Quantity DemandedAs the price changes, demand

changes. On a graph, it is the movement ALONG the curve.

Change in Demand

• Demand changes for other reasons instead of a price change.

• When this happens, the ENTIRE demand curve shifts on a graph.

• A shift to the right is an increase.

• A shift to the left is a decrease. Ex: income changes, competition, consumer tastes change

Change in Demand

Question: Is it increasing or decreasing?

Answer: Increasing

SHIFTS in the Demand Curve

$1.25

25 4010

D

What factors would cause

a SHIFT in the demand for coffee?

SHIFTS in the Demand Curve

$1.25

25 40

D

Income

What would happen if you

receive an increase in

income?More coffee is demanded at $1.25

D2

SHIFTS in the Demand Curve

$1.25

25 0

D

Income

What would happen if your income were

reduced?

Less coffee is demanded at $1.25

D2

10

SHIFTS in the Demand Curve

$1.25

25 40

D

Change in Preferences

What if you began to enjoy coffee

more than before?

More coffee is demanded at $1.25

D2

SHIFTS in the Demand Curve

$1.25

25 0

D

Change in Preferences

What if you started to get sick of drinking coffee?

Less coffee is demanded at $1.25

D2

10

SHIFTS in the Demand Curve

$1.25

25 0

D

Expectations

What if you knew there was going to be a sale on coffee

next week?Less coffee is demanded at $1.25

D2

10

SHIFTS in the Demand Curve

$1.25

25 40

D

Expectations

What if you knew that a sale on coffee were

ending tonight?

More coffee is demanded at $1.25

D2

LAST DAY

SubstitutesOne product is purchased instead of another because of price.

Vs.

Kentwood Sam’s Choice

Substitutes

Vs.

Fruit Loops Fruit Islands

Substitutes

Butter vs. Margarine

ComplementsPrice of a related good changes, changing the demand for its partner – product.

Camera and Film

Complements

Hot Dog and Hot Dog Bun

SHIFTS in the Demand Curve

$1.25

25 0

D

Price of Related Goods

Less coffee is demanded at $1.25

D2

10

SUBSTITUTES

SHIFTS in the Demand Curve

$1.25

25 40

D

More coffee is demanded at $1.25

D2

SUBSTITUTES

Price of Related Goods

SHIFTS in the Demand Curve

$1.25

25 40

D

More coffee is demanded at $1.25

D2

COMPLEMENTS

Price of Related Goods

What if the price of donuts went

down?

SHIFTS in the Demand Curve

$1.25

25 0

D

Price of Related Goods

Less coffee is demanded at $1.25

D2

10

COMPLEMENTS

What if the price of donuts went

up?

Elastic Demand

When a small change in price causes a huge change in demand.

This computer system in 1981 cost $1700.

Elastic Demand

This computer system in 2004 costs $700.

Inelastic Demand

When a small change in price causes little or no effect in the demand of a product.

Insulin shot for diabetics

Elasticity = Flexibility

Demand Elastic Consumer can be flexible and delay the purchase or buy a substitute (example: T-bone steaks)

Demand Inelastic Consumer cannot be flexible and must purchase the product no matter what (example: salt)

“Supply”

Many of the terms for supply are the same as demand, except, some are simply opposite.

When looking at demand, you are looking from the buyer’s point of view.

When looking at supply, you are looking from the seller’s point of view.

Supply Schedule

On a supply schedule, for example, as the price goes down, the quantity supplied goes down.

If the price lowers, the supplier will slow down production to make up for the loss in profits.

Supply Schedule

• Graphing the Supply Schedule

• Upward sloping from left to right.

• Change in Quantity Supplied is movement along the curve.

Supply Curve

Change in Supply is the same as Change in Demand. The curve shifts because of reasons other than price.

And once again, a shift to the right is an increase and a shift to the left is a decrease.

Question: Is the supply curve increasing or decreasing? Answer: Decreasing

“Prices and

Decision Making”

Equilibrium PriceThe point where the demand curve and the supply curve meet on the graph.

When the demand for a product goes down, the business has a surplus of products. Usually, they will slow production down.

Surplus and Shortage

When the demand for a product goes up, the business will have a shortage of a product until it increases the production to compensate.

Surplus vs. Shortage

DepreciationThe gradual wear and tear on

capital goods over time and through use. Therefore, the value has decreased.

RationingA system under which a government agency decides everyone’s fair share.

Examples: •Great Depression•WWII•Gas shortage of late 1970’s