DEMAND, SUPPLY, AND
EQUILIBRIUM – TOPIC 3
MR. SOUTHWARD
DEMAND
• The desire to own something and ability to
pay for it; must have both for demand to be
present.
• Law of Demand
• Ask yourself: What quantity of a product
are you willing to buy when the price of
that product is “high?” When the price is
“low?”
• Why do you think this is?
LAW OF DEMAND
• As Price
• As Price
then the Quantity Demanded will
then the Quantity Demanded will
• Two major reasons for the Law of Demand:
• Substitution Effect – consumer reacts to a rise in
the price of one good by consuming less of that
good and more of a substitute good
• Income Effect – unable to buy as much
DEMAND SCHEDULE
• A table that lists the quantity of a good that a
person will purchase at various prices in the market.
• Does it do a business/society any
good to view the demand for an
individual?
• What would be better?
• The ENTIRE market for that product.
• Market Demand Schedule shows the
quantities demanded at various prices
by all consumers in the market.
DEMAND GRAPH (PAGE 78)
• Plot the following points in your own
notes to create the Market Demand
Curve for Soda.
GRAPHICAL ANALYSIS
•Will the graph always look
like this? Using the
terminology from the
section thus far, explain why
or why not.
SHIFTS IN THE DEMAND
• Does your behavior as a consumer
always stay the same?
• Probably Not, our behaviors towards
products constantly are effected by
certain determinants.
• Normally, when we examine Demand
and Supply we “hold everything else
constant.” AKA Latin phrase, Ceteris
Paribus;
NON-PRICE
DETERMINANTS
• These factors will change our behaviors and
therefore the entire line will shift:
• Income (normal vs inferior goods)
• Consumer Expectations.
• Change in Demographics
• Change in Population Sizes
• Consumer Tastes and Advertising
• Prices of Related Goods
• Substitutes
• Complements
EXAMINING THE
DETERMINANTS
• Use the diagram to analyze all of the
determinants which effect our behaviors as
consumers.
• You must:
• Explain what the determinant is saying
• Come up with your OWN example
• Using “up and down” arrows, provide a
shortened version of what in information is
telling us (I will demonstrate the first one)
ELASTICITY OF DEMAND
• The way consumers respond to
changes in price;
• Inelastic – unresponsive
• Elastic – responsive
• Unitary – percentage changes
are equal
ELASTIC DEMAND
• Use the formulas on page 85 of your
text to prove this line is elastic.
INELASTIC DEMAND
• Do the same for this demand line.
FACTORS AFFECTING ELASTICITY
• Availability of Substitutes
• Relative Importance
• Necessities Versus Luxuries
• Change Over Time
• Using the Table, explain each of these
factors, give me the example out of the text
book with explanation, and then come up
with your own example that is different from
the text.
TOTAL REVENUE AND
ELASTICITY
• Upon completion of the table,
answer the following the
questions on the back based
off your reading of the section
starting on page 88 labeled
“How Elasticity Affects
Revenue.”