Laws of Demand

Goal 8

Discuss

What is a market? In a market who is the

consumer? How does the price of a

good affect the consumer?

Market

An arrangement that allows buyers and sellers to exchange things

Markets exist because no one is self sufficient and no one produces all we require to satisfy all our needs and wants.

Demand

Description› The quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time

Demand Illustration p.1 sec. 1

Price

Quantity

As price goes up, quantity goes down

D1

Discuss

How does demand and “want” or “desire” differ?

You may want or desire a new car or a closet full of clothes, but you demand these things only when you are willing and able to buy them.

Quantity Demand

The quantities of a particular good or service consumers are willing and able to buy at set prices at a particular time

Quantity Demand Illustration

D2

Price

Quantity

Demand Schedule

How much people are going to buy at the various prices.

Ex. The price of pizza

Price Quantity

$.50

$1.00

$1.50

$2.00

$2.50

Law of Demand

As price goes up quantity goes down

As price goes down quantity goes up

People buy less of something at higher prices than they do at lower prices.

ELASTIC DEMAND: demand that is very sensitive to a

change in price goods that one might stop buying

or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT

INELASTIC DEMAND

demand that is not very sensitive to a change in price

goods that you would buy at any price; there are few if any substitutes for these goods.

(milk, gas, prescription drugs) **on a graph this demand curve would be very steep.

Illustration of Decrease and Increase in Demand Decrease in Price Increase in Price

Price

Quantity

D1 D2

Quantity

Price

D1D2

The less you buy the more you will move to the left!

The Demand Curve

The Demand Curve slopes downward to the right because the consumer is willing and able to buy more gasoline at lower prices than at higher prices.

Scenario #1

Harris Teeter is advertising a sale on hot dog buns. What is the impact on the demand for hot dogs?

Scenario #2

Playstation 3, the newest video game console, hits stores. What is the impact on the demand for Xbox 360?

Scenario #3

The weatherman forecasts rain for the weekend in Charlotte. What is the impact on the demand for umbrellas?

Scenario #4

The N.C. General Assembly increases minimum wage to $7/hour. What is the impact on the demand for clothing?

Scenario #5

A snowy blizzard blows through Charlotte. What is the impact on the demand for snow boots?

Scenario #6

The price of MP3 players decreases dramatically due to new technology. What is the impact on the demand for portable CD players?

Scenario #7

Summertime is approaching. What is the impact on the demand for shorts?

Scenario #8

The price of hamburgers increases at Food Lion. What is the impact on the demand for French fries?

Changes in Demand

Reasons Demand can change

People’s Income Weather Complementary Goods Substitute Goods

What is a Complementary Good?

Complementary Good: Two goods that are usually consumed together (Hot Dogs & buns)

What is a Substitute Good?

Substitute Good: An acceptable replacement for a good (Playstation & Xbox)

People’s Income Increases

Effect on Demand

Demand Increases› (shift right)

P

Q

D1 D2

Bad Weather (for product)

Effect on Demand

Demand Decreases› (shift left)

P

Q

D1D2

Price of Complementary Good Decreases (ex: peanut butter & jelly)

Effect on Demand

Demand Increases› (shift right)

P

Q

D1 D2

Peanut Butter

Price of Substitute Good Decreases (ex: Pepsi & Coca-Cola)

Effect on Demand

Demand Decreases› (shift left)

P

Q

D1D2

Pepsi

Complementary vs. Substitute

Can YOU tell the difference????

Substitute

Complementary

Substitute

Complementary

Substitute

Substitute

Complementary

Elasticity of Demand

How much the quantity demanded will change if the price rises or falls.