Chapter 7
The Demand Curve and
Elasticity of Demand
Graphing the Demand Curve
• A demand schedule is a table reflecting
quantities demanded at different possible
prices.
• A demand curve shows the quantity
demanded of a good or service at each
possible price. Demand curves slope
downward, clearly showing the inverse
relationship.
Determinants of Demand
• Main Idea: A change in the
demand for a particular item shifts
the entire demand curve to the left
or right.
• *Increase moves right
• *Decrease moves left
Highlight this in your notes!!
1. Population
• D1 – represents the
original demand for
TV’s
• D2 – represents the
demand after the
population increased
• If population
decreased, demand
would also decrease
2. Income
If Income increases,
demand also increases.
3. Tastes &
Preferences
*This refers to what people
like and prefer to choose.
*Fads (trends)
This Beanie Baby graph
represents the demand in the
early 1990’s. As the
popularity died down, the
demand curve shifted back to
the left.
FYI-There are Beanie Babies 2.0 now
in stores featuring Cartoon
characters (Madagascar, Diego &
Dora, WonderPets)
4. Substitutes
Determined by availability
& price of substitute
Think it through!
If the price of the
substitute decreases, then
you’ll buy that instead of
the original item.
Vice versa:
If the price of the
substitute increases, you’ll
be more of the original
item.
5. Compliments
*Things that are bought
and sold together
If the price of one
decreases, the demand
of BOTH complimentary
items increases.
This examples shows:
If the price of a digital
camera decreases, the
demand of the camera
AND the flash memory
increases.
The Price Elasticity of
Demand
• Main Idea: Elasticity of demand
measures how much the quantity
demanded changes when price
goes up or down.
• For some goods, a rise or fall in price
greatly affects the amount people are
willing to buy. This economic concept is
referred to as elasticity.
• The measure of how much consumers
respond to a given change in price is
referred to as price elasticity of demand.
Examples
Elastic Demand
• Luxury items, vacations,
high-end electronics, even
coffee are examples of
elastic goods/services and
have a very elastic demand.
Inelastic Demand
• Staple foods, medicine,
spices have an inelastic
demand. A price change has
little impact on the quantity
demanded by consumers.
Three factors determine the price elasticity
of demand for an item:
– The existence of substitutes
– The percentage of a person’s total budget
devoted to the purchase of that good
– The time consumers are given to adjust to a
change in price
Figure 8
Figure 9
Figure 11
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