# Chapter 7 ```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
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 &amp;
Preferences
*This refers to what people
like and prefer to choose.
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
Dora, WonderPets)
4. Substitutes
Determined by availability
&amp; price of substitute
Think it through!
If the price of the
substitute decreases, then
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
• http://www.glencoe.com/qe/efcsec.php?qi
=15318
• eflashcards
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