Unit 1: Demand

Demand: The quantities that people are willing and able to buy at various prices.


Elasticity of demand: A measure of how consumers react to a change in price.

Inelastic demand: Demand will either not change, or change very little , regardless of price. (Needs).
     - Few to no substitutes
     - Ex: Gas, water, milk, soap, insulin
     -E<1

Elastic demand: Demand changes greatly where there is a change in price.
     -E>1
Unitary demand: Change in the price of the good, causes an equal change in the quantity demanded.
     -E=1

The Law of Demand: There is an inverse relationship between price and quantity demanded (As price increases, quantity decreases).
   - A change in price causes a change in quantity demanded.

Formulas:
▲in quantity or price= (new-old)/old
Price elasticity of demand= (%▲in quantity) / (%▲in price)
Total Revenue= Price X Quantity

Causes of "Change in demand": 

1. ▲in buyer's tatse (advertisement)
2. ▲in the number of buyers (population)
3. ▲in income (*normal and **inferior goods)
4. ▲in the price of related goods (***substitute and *****complementary goods)
5. ▲in expectations

*Goods that buyers buy more of when their income rises. 

**Goods that buyers buy less of when their income rises. 

***Good that serve roughly the same purpose to buyers (Pepsi and Cola).

****Goods that are often consumed together.

Demand curves are always downward sloping.