¥A relationship between price and quantity demanded (other things
constant). Demand describes buyer behavior.
¥Demand shows how
much of a good consumers are willing and able to buy at each possible price
during a given period of time, other things held constant
Law of Demand
The law of demand states that there is an inverse
relationship between price and quantity
demanded.
Demand is a relationship between price and quantity
demanded. It shows how one changes
when the other changes.
Changes in quantity demanded due to price changes are NOT
changes in demand
Demand Curve
¥The response of
consumers to a change in price is measured by the price elasticity of demand.
Price Elasticity
¥The price
elasticity of demand
is the percentage change in quantity demanded divided by the percentage change
in price.
Demand Curve
Price Elasticity
The price of popcorn goes up 20% and the quantity demanded
goes down 10%.
Elastic vs. Inelastic Demand
¥Demand can be
elastic, inelastic, or unitary elastic.
Elasticity Estimates
¥Price elasticity
explains why producers cannot charge the highest possible price.
¥Higher prices may
actually lower total sales revenue.
Price Elasticity and Total Revenue
¥Total
revenue — the
price of a product multiplied by the quantity sold in a given time period.
Elasticity and Total Revenue
Elasticity and Total Revenue
Elasticity and Total Revenue
¥Price cuts reduce
total revenue if demand is price inelastic.
Determinants of Elasticity
¥Differences in
price elasticity are explained by several factors:
–Necessities
vs. luxuries
–Availability
of substitutes
–Relative price