Economics Chapter 3Demand

3.1, 3.2, 3.3

How does demand differ from the quantity demanded?•Demand is at various prices while

quantity demanded is at one particular price.

•Demand: the consumer is willing AND able to buy the product and the demand for the product must be examined over a certain time frame.

What does the law of demand state?

•The relationship between the quantity demanded and the price is inverse. ▫Price is up, quantity demanded is down▫Price is down, quantity demanded is up.

What do demand schedules and demand curves illustrate?•They show the relationship between price

and quantity demanded.•Demand schedule: shows various prices in

a certain amount of time to get the price at which the most profit is earned.

•Demand curves: plots the information on a graph.

What does it mean for a products demand to shift?•It means there was a change in any

determinant of demand.•Makes the graph shift left or right.

What factors can shift demand for a product?•Consumer tastes and preferences,•Market size,•Income,•Prices of related goods, and•consumer expectations.

How do substitute goods differ from complementary goods?•Complementary goods are used with

other goods, ex. Chocolate syrup and milk.

•Substitute goods are substitutes for the real thing (usually at a cheaper price.) “the store brand”

What is demand elasticity?

•The degree to which changes in a goods price affect the quantity demanded by consumers.▫Like a rubber band: you pull back harder,

the band swings back into place harder.

What is the difference between elastic and inelastic demand?•Elastic demand: when the demands price

change leads to a significant change in quantity demanded.

•Inelastic demand: the opposite. The demands price has little effect on its change in quantity demanded.

•The difference is the effect of the price on the good.

How is elasticity of demand measured?•The total revenue test: (total receipts)

monitoring any changes in a markets revenue before and after changes in price of a product.

Credits

•Picture: "E101ch910." E101ch910. N.p., n.d. Web. 24 Aug. 2012. <http://www.oswego.edu/~atri/e101ch910.html>.•Information:Pennington, Robert Leroy. Holt Economics. Austin,Texas: Holt, Rinehart and Winston, 2003. Print.