Chapter 4 - DemandSection 1 – Understanding DemandSection 2 – Shifts in DemandSection 3 – Elasticity of Demand

Group Work/Presentations• Directions:– Read the section that refers to your question(s).– Prepare a presentation to teach your term(s) to

the class. Be sure to answer all questions from your chapter or section.

– Add something from that section/chapter that you think may be important/interesting for your classmates to know.

– Create a visual aid as part of your presentation for your chapter (skit, drawing, illustration, etc.)

Jumpstart Assignment• Study for your Economics Overview

Quiz.

Jumpstart Assignment• Turn to page 78 of your textbook, answer the

question under “Economics Journal.”

What is Demand?• Demand – the desire and ability to buy

something• The law of demand states that consumers buy

more of a good when its price decreases and less when its price increases.

• This is because of the substitution effect and the income effect.

Demand Schedule• A demand schedule is a table that lists the

quantity of a good a person will buy at each different price.

• A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at each different price.

Demand Curve• The demand curve is always downward sloping.• Change in Quantity Demanded – a movement

along the demand curve, a result of the change in the price of a good

• Change in Demand – a shift in the demand curve

What Causes Shifts in Demand?

1. IncomeChanges in consumers incomes affect demand. A

normal good is a good that consumers demand more of when their incomes increase. An inferior good is a good that consumers demand less of when their income increases.

2. Consumer ExpectationsWhether or not we expect a good to increase or

decrease in price in the future greatly affects our demand for that good today.

What Causes Shifts in Demand?

3. PopulationChanges in the size of the population also

affects the demand for most products.

4. Consumer Tastes and AdvertisingAdvertising plays an important role in many

trends and therefore influences demand.

5. Change in Demand for Other GoodsComplements are two goods that are bought

and used together. Example: skis and ski boots

Substitutes are goods used in place of one another. Example: skis and snowboards

What Causes Shifts in Demand?

Jumpstart Assignment• Describe the difference between a change in

demand and a change in quantity demanded, then show what it looks like graphically.

Elasticity of Demand• Elasticity of demand is a measure of how

consumers react to a change in price. • Demand for a good that consumers will continue

to buy despite a price increase is inelastic.

Elasticity of Demand• Demand for a good that is very sensitive to

changes in price is elastic.

Total Revenue Test• Elastic Demand – TR will increase with a drop in

price.• Inelastic Demand – TR will decrease with a drop

in price.

Factors Affecting Elasticity of Demand• Availability of Substitutes• Relative Importance (portion of budget)• Necessities vs. Luxury• Time