2DemandDemandDemand•It is a schedule or curve that shows the various amounts of a product that consumers are willing to buy at each of a series of prices over a given time.•Law of Demand states as prices fall, demand rises and as prices rise, demand fallsExplanation:•Income effect – lower prices increase purchasing power of a buyer•Substitution effect – at lower prices, buyers have the opportunity to substitute a less expensive product for other products that are relatively more expensiveEach product has a demand curve in which explains a lot about the product. Demand curves can be steep or more flat depending how consumers react to changes in their personal income as it relates to purchasing this product. Additionally, the availability of less expensive substitutes and a consumer’s willingness to buy a substitute implies that there may not be any brand loyalty, therefore it is a very elastic product..
3Determinants of DemandDeterminants of DemandDeterminants of Demand•Buyers tastes or preferences•Number of buyers -more buyers, higher demand•Changes in buyer’s Income•Prices of related or substitute goods -are they more or less expensive•Complementary goods – If tuition prices fall, demand for textbooks would increase•Consumer Expectations – expectations of future prices The determinants of demand explain why may have a high or low demand for different goods. When making choices, subconsciously we incorporate some or all of these considerations in our final decision. The more informed we are about substitutes, or future expectations, the better decision we will make.
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4Price Elasticity of DemandPrice Elasticity of DemandPrice Elasticity of Demand•Measures responsiveness to price changes •If Elastic demand– Large change in quantity purchased for given price change, > 1•If Inelastic demand– Small change in quantity purchased for given price change, < 1•If Unitary Elastic Demand– Equal change in quantity purchased for given price change, =1