BRIONES, ERICA MAEBSLM 2A

1. Define the following terms:a. Quantity demanded – the amount of a good or service that buyers (or a buyer) are

willing and able to purchase at a specific price during a specific period of time.b. Demand – a schedule showing the amounts of a good or service that buyers (or a

buyer) wish to purchase at various prices during some period of time.c. Price Elasticity of Demand – the ratio of the percentage change in quantity

demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.Formula: PEoD = (% Change in Quantity Demanded)/(% Change in Price)Formula for the percentage change in price: [Price(NEW) - Price(OLD)] / Price(OLD)Income Elasticity of Demand – the ratio of the percentage change in the quantity demand of a good to the percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.Formula: IEoD = (% Change in Quantity Demanded)/(% Change in Income)Formula for the percentage change in income: [Income(NEW) - Income(OLD)] / Income(OLD)

d. Cross Elasticity of Demand – the ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.Formula: CPEoD = (% Change in Quantity Demand for Good X)/(% Change in Price for Good Y)Formula for the percentage change in price: [Price(NEW) - Price(OLD)] / Price(OLD)The formula for the change in quantity demanded: [QDemand(NEW) - QDemand(OLD)] / QDemand(OLD)

2. Show a demand curve depicting (a) movement along the curve and (b) shift in the curve. Site reasons for each.A demand curve is a curve used to illustrate demand.

BRIONES, ERICA MAEBSLM 2A

A movement on the demand curve is caused by a change in the price of the good or service. The change of price affects the demand of a price of a good or service and is represented by a movement along the line of a demand curve.

A shift on the demand curve occurs when non-price factors kick into the mix and increases the demand for the price of goods or services – this changes the quantity demanded at each price, which means that the entire line (that represents quantity demanded at each price) will have to move. This is a shift of the entire curve and not just movement along the line.

3. What are the 7 non-price determinants of demand? Explain each. Show graphically.a. Tastes. A favorable change in consumers tastes (preferences) for a product – a

change that makes the product more desirable – means that more of it will be demanded at each price. Demand will increase; the demand curve will shift rightward. An unfavorable change in consumer preferences will decrease demand, shifting the demand curve to the left.

b. Number of Buyers. An increase in the number of buyers in a market is likely to increase demand; a decrease in the number of buyers will probably decrease demand.

BRIONES, ERICA MAEBSLM 2A

c. Income. As incomes increase beyond some point, the demand for used clothing, retread tires, and third-hand automobiles may decrease, because the higher incomes enable consumers to buy new versions of those products.

d. Substitutes. When two products are substitutes, an increase in the price of one will increase the demand for the other. Conversely, a decrease in the price of one will decrease the demand for the other.

e. Complements. If the price of a complement goes up, the demand for the related good will decline. Conversely, if the price of a complement falls, the demand of a related good will increase.

BRIONES, ERICA MAEBSLM 2A

f. Unrelated Goods. A change in the price of one has little or no effect on the demand for the other.

g. Consumer Expectations. Changes in consumer expectations may shift demand. A newly-formed expectation of higher future prices may cause consumers to buy now in order to “beat” the anticipated price rises, thus increasing current demand.