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Chapter 4 Understanding Demand Yoliann Pons Period. 5 http: //www. redstaplerchronicles. com/wp-content/uploads/2008/04/gavel. jpg http: //www. google. com/imgres? imgurl=http: //www. todayifoundout. com/wpcontent/uploads/2010/02/gold-dollar-sign. jpg&imgrefurl=http
A demand is something one desires, like a basic command. http: //www. google. com/imgres? imgurl=http: //www. designofsignage. com/application/symb ol/hospital/image/600 x 600/arrowup. jpg&imgrefurl=http: //www. designofsignage. com/application/symbol/railway/largesymb ols/arrowup. html&usg=__ http: //www. google. com/imgres? imgurl=http: //tallyhypnosis. com/wpcontent/uploads/2010/03/dollar_sign. jpg&imgrefurl=http
The Law Of Demand -if the price goes down the quantity demanded goes up. -If the price goes up the quantity demanded goes down. http: //www. sanjoseca. gov/district 10/images/budget. jpg http: //tallyhypnosis. com/wp-content/uploads/2010/03/dollar_sign. jpg
Some Effects Through The Law Of Demand In the law of demand it’s the want and the need of an item to be lower so it can be consumed. -it’s a demand of two patterns of behavior. -Substitution effect -Income effect Through the effects consumer can change and control their spending limits
Control Through the effects consumers can change and control their spending limits. - Both effects give out reasons why price decreases the quantity purchased. http: //www. frugalbabble. com/wp-content/uploads/2010/11/impulse-shopping. jpg
Substitution Effect The substitution effect also goes to dropping prices. -If an item drops its price then that item becomes cheaper compared to others. http: //www. designofsignage. com/application/symbol/hospital/image/600 x 600/arrow-up. jpg http: //www. redstaplerchronicles. com/wp-content/uploads/2008/04/gavel. jpg
Example When a price of a regular item suppose shoes increase then ones budget cant buy as much as it use to. http: //www. sanjoseca. gov/district 10/images/budget. jpg
Consumption Is always measured through the amount of a good that is purchased.
Chart Of Law Of Demand http: //1. bp. blogspot. com/_NXS 1 mc. Y 2 wv. U/Shu. NBAt. D 33 I/AAAAA 0/51 AOc 7 Upt. Zk/s 400/law%2 Bof%2 Bdemand. jpg
The Income Effect The income effect makes all of us more poor, specially when everyday things start to increase such as movie tickets, fast food restaurants and gas prices. All the goods become unaffordable that its impossible to have a good amount of goods. http: //weblogs. baltimoresun. com/news/technology/dollar-sign. jpg http: //beyondtheblog. files. wordpress. com/2008/11/alpha-thumbs-down. jpg
A Demand Schedule - A demand schedule is a table that makes it easier to list the quantity of a good a person will buy at each different price. The law of demand explains how the price of any item affects the quantity demanded of that item If you are thinking to demand a for a good, you must be willing and be able to buy it at the specific price. (you want the good but you can most importantly AFFORD to buy it). http: //rpmedia. ask. com/ts? u=/wikipedia/en/d/d 5/Market_Demand_Schedule_copy. png
The Demand Graph - A demand curve is a graphic representation of a demand schedule. http: //cultblender. files. wordpress. com/2008/06/curve. png
Limits Of A Demand Curve The market demand curve can be used to predict how people will change their buying habits when the price of a good RISES OR FALLS. http: //rlv. zcache. com/black_arrow_down_icon_flyerp 2447985886124631222 l 2 x 0_210. jpg
What Causes a Shift? 1. 2. 3. 4. Income Consumer Expectations Population Consumer Tastes and Advertising A change in the price of a good does not cause the demand curve to shift http: //thefuntimesguide. com/images/blogs/thumbs-up-matt. jpg
Income Most items we purchase are normal goods, goods that consumers demand more of when their income increases. A rise in income would cause the demand to shift to the right of the curve is called increase in demand. A fall in income would cause the demand curve to shift left, this is called decrease in demand. Inferior goods – an increase in income causes demand for these goods to fall. http: //match. collegiate-va. org/content_images/53/dollar-sign. jpg
Demand Curve Shift http: //www. conservapedia. com/images/8/8 c/Demand_curve_shift. gif http: //www. bradfitzpatrick. com/store/images/products/a 079 -cartoon-monkey-head. jpg
Consumer Expectations The expectation of a higher price in the future has caused your immediate demand to increase If you expect the price to rise, your current demand will rise, which means you will buy the product sooner. If you expect the price to drop, your current demand will fall and you will wait for the lower price. http: //3. bp. blogspot. com/_AEg. D 0 Q-p. JZ 8/S 0 Fq. Wu_xx 1 I/AAAAAIY/s 0 Ng. QW 2 w. RWI/s 320/angry+santa. jpg
Population Changes in the size of the population will affect the demand for most products. Population trends can have a strong effect on certain goods. http: //1. bp. blogspot. com/_scmi. G 7 I 97 Q 4/TUVn. Eb 8 w. R-I/AAAAAys/Zi. HWv. Bgg 2 Dk/s 1600/black-friday-electronics. bmp http: //todaymade. com/blog/wp-content/uploads/2011/02/sale_sign. jpeg
Consumer Tastes and Advertising and publicity often play an important role in why some fads begin. Changes in tastes and preferences cannot be explained by changes in income or population or worries about the future price increases. Companies spend money on advertising because they hope that it will increase the demand for the goods they sell. http: //blog. iimageworld. com/wp-content/uploads/2007/11/funnyads-18. jpg http: //berns 124. files. wordpress. com/2010/09/dumb_funny_ads 1300 x 290. jpg
Prices of related goods 1. 2. The demand curve for one good can be affected in the demand for another good. There are 2 types of related goods Complements – 2 goods that are bought and used together. Substitutes – goods used in place of another http: //www. 97 thfloor. com/blog/wp-content/uploads/2010/02/candy-2. jpg
Changes in demand Cetris paribus- all other things held constant. Economists use that term when referring to changes in price, and number of sales staying the same. A demand curve is accurate only when the only change is price. An increase in price and decrease in sales would lead to decrease in the quantity demand A decrease in price and increase in sales would lead to an increase in demand. A change In demand is shift of the entire curve.
Elasticity of Demand Elasticity of demand basically means how much the buyer still wants or doesn’t want a good or service due to a price drop or raise.
Inelastic is that even if the price rises or drops on a specific good or service, the buyer’s want (demand) stays the same.
Elastic basically means that if a price in a good or service changes by any slight amount , the buyer’s want (demand) will also change.
Calculating Elasticity Formula = percentage change in the. demand of a good_____ percentage change in the price. of a good. The results are usually negative because an increase in the price of a good will always decrease the quantity of demand.
Values of Elasticity Unitary elastic – is a demand in which its elasticity is equal to 1.
Factors Affecting Elasticity There are some factors that can affect a persons elasticity of demand for a good or service. Ex. : Some characteristics about different goods set them apart and make your demand for those goods less elastic.
Availability of Substitutes If there are little substitutes for a good, then even if the price drops or rises, you would still buy it because the substitutes are not as good. For example: If your favorite Broadway show is performing , and you want to go, there really no good substitute for a ticket. You can go see another show , but it wouldn’t be as good. So even if the price changes slightly, your demand stays inelastic. Meaning you would still buy the ticket.
Relative Importance A second factor in choosing a good’s elasticity of demand is how much of your budget you spend on that specific good. For example: If you already spent a big amount of your budget on a good, then a price increase might cause you to make some hard decisions. Making your demand elastic.
Necessities Versus Luxuries The third factor in choosing a good’s elasticity depends on whether the person thinks the good is a necessity or a luxury. Ex: A necessity is a good that people need. Meaning they will always buy it even if the price changes. Making they’re decision inelastic. Ex: A luxury is a good that people want. Therefore, if the price increases, people might not buy that good because it is not needed. Making they’re decision elastic.
Change over time When the price of a good changes, the customers need time to change their habits of shopping. When the prices go up, the customers take time to find a substitute.
Elasticity and revenue Elasticity helps us measure how costumers respond to price changes on different products. The elasticity of demand determine how a change in prices will affect a firms total revenue or income.
Elasticity and revenue: computing a firm’s total revenue. A total revenue is the amount of money a company receives by selling its products. This is determined by the price and the quantity sold.
Elasticity and revenue: total revenue and elasticity demand When a good has an elastic demand, raising the price of each unit sold by twenty percent will decrease the quantity sold by a larger percentage. The same process can be the opposite, if the firm were to lower the prices by certain percentage, the quantity demanded can raise by an even greater percentage.
Elasticity and revenue: total revenue and inelastic demand. When a demand is inelastic, the consumers demand is not very responsive to the price changes. A decrease in price increases the quantity demanded if the demand is inelastic. However, demand doesn’t rise to much in percentage, as the price falls, the total revenue decreases.
Elasticity and revenue: elasticity and price policies. Helps decide and recognize weather the demand for the product is elastic or inelastic.