Demand - Demand Demand Estimatingdemand Estimatingdemand Thequestionis:Howmuchmore Theansweris:Thedemandcurve Demandcurves Demandcurves Elastic

Demand Demand A key determinant of price.

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Estimating demand Estimating demand  The operating assumption is that if you lower the price you will sell more.  The question is: How much more?  The answer is: The demand curve.

Demand curves: Demand curves:  Elastic  Inelastic  Unitary  Fixed  Moving along a demand curve vs. shifting the curve.  Most demand curves aren’t straight lines

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Elastic demand curve Elastic demand curve $3 $6.75

Inelastic demand curve Inelastic demand curve $4.50 $2.50

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Unitary demand Unitary demand D D Price .50 1.00 1.50 2.00 2.50 0 20 40 60 80 100 120 Quantity demanded $120 $120

Fixed demand curve Fixed demand curve

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Price elasticity – the shape of the Price elasticity – the shape of the demand curve. What determines demand curve. What determines elasticity? elasticity?  Urgency  Substitutability  Size of price relative to income ◦ Demand curves become more elastic over time  Other uses  Time frame  Product durability