DEMAND
HOW THE CONSUMER INFLUENCES HOW I MAKE MONEY

LAW OF DEMAND
Part 1. As PRICE increases, DEMAND decreases
Part 2. As PRICE decreases, DEMAND increases
Price
goes
up
Demand
goes
down
Demand
goes
up
Price
goes
down
THEN
THEN

DEMAND CURVE
•A graph that illustrates the demand for a
product
•It shows how much consumer desire for a
product changes as the price changes

MARKET DEMAND CURVE: THIS CURVE ILLUSTRATES THE
QUANTITIES OF APPLE JUICE DEMANDED AT EACH PRICE AY ALL
CONSUMERS IN THE MARKET.
$0
$1
$1
$2
$2
$3
50 200 350 500 650 800
Bottles of Apple Juice per
week
Price
per
bottle
(in
dollars)
Demand
Curve
Price of a
bottle of
Apple Juice
Quantity
demanded per
week
$0.75 800
$1.00 650
$1.25 500
$1.50 350
$1.75 200
$2.00 50

ELASTICITY OF DEMAND
•The degree to which changes in price cause
changes in demand
or
•If we change the price, will demand change a
lot or a little?

ELASTIC DEMAND
•If Demand for a good is very sensitive
to changes in price, the demand is
ELASTIC
Or
•If prices changes a little bit, demand
will change a lot!

EXAMPLE OF ELASTIC DEMAND
•Price of pizza goes up even a little
bit, demand goes down a lot.

ELASTIC DEMAND FOR PIZZA
CURVE IS FLAT
$10
$11
$12
$13
$14
$15
$16
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
6
0
0
Number Purchased per Week
Price
per
Pizza
Demand for Pizza

INELASTIC DEMAND
• Demand for a good that consumers will continue
to buy despite a price increase is INELASTIC
OR
• Even if price changes a lot, demand changes very
little

EXAMPLE OF INELASTIC DEMAND
•The price of soap goes up a lot, the
demand stays almost the same.

INELASTIC DEMAND FOR SOAP
CURVE IS STEEP
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 10 20 30 40 50
Quantity Demanded (In
Thousands)
Price
per
Bar
of
Soap
Soap

FACTORS AFFECTING ELASTICITY
• Several different factors can affect the elasticity
of demand for a certain good.
1. Availability of Substitutes
If there are few substitutes for a good, the demand will
not likely decrease as price increases (inelastic), the
opposite (lots of substitutes) is also usually true
(elastic)
Ex. Gasoline has no substitutes- inelastic
McDonalds has many (Burger King, etc)- elastic

FACTORS AFFECTING ELASTICITY (CONT.)
2. Relative Importance
Another factor determining elasticity of
demand is how much of your budget you
spend on the good.
Ex. Mortgage payment must be paid (inelastic)
Entertainment (movies, etc.) are elastic

FACTORS AFFECTING ELASTICITY (CONT.)
3. Necessities vs. Luxuries
Whether a person considers a good to be a necessity
or luxury has a great impact on the good’s elasticity of
demand for that person.
Ex. Food (inelastic)
Jewelry (elastic)

FACTORS AFFECTING ELASTICITY (CONT.)
4. Change over Time
Demand sometimes becomes more elastic over time
because people can eventually find substitutes.
Ex. Blockbuster used to be the only place to rent
videos (inelastic)
Netflix, Video on Demand, Pay Per View, are
substitutes for Blockbuster (elastic)

CHANGE IN DEMAND
• A demand curve is only accurate as long as there
are no changes other than price that could affect a
consumer’s decision
• When factors other than price (non-price factors)
affect the demand curve, the entire curve shifts to
the left or to the right

NON-PRICE FACTORS THAT EFFECT DEMAND
•These factors will cause the demand
curve to shift to the left (less quantity
demanded) or to the right (more
quantity demanded)

CHANGE IN DEMAND: RECENTLY, FARLEY HIGH SCHOOL CHANGED BOYS HOCKEY
FROM A VARSITY SPORT TO AN INTRAMURAL SPORT. AS A RESULT, THEY NEEDED TO
BUY FEWER HOCKEY PUCKS. THE DECREASE IN DEMAND IS SHOWN BY A SHIFTING
DEMAND CURVE.
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
10 20 30 40 50 60 70
Original
Demand
New Demand

1. CHANGE IN INCOME
• As people earn more money, the demand for luxury goods
will increase
• As people earn less money, the demand for luxury goods
will decrease
• Ex. If I win the lottery, I’ll buy a Jaguar
If I get laid off, I’ll take the bus

2. SUBSTITUTION EFFECT
• If there is a substitute product, demand for an item
may be influenced by the price of the substitute
• Ex. If the price of butter goes up, people will
substitute margarine.

3. COMPLIMENTARY PRODUCTS
• The demand for an item will increase or decrease if the
price of a complimentary product (something that goes
with it) increases or decreases
• Ex. If the price of hot dogs goes up, the demand for hot
dogs goes down, thereby decreasing the demand for hot
dog buns

4. CHANGE IN ATTITUDES
•As people’s attitudes about products change,
so does the demand
•Ex. Fashion, music, food

HOW DOES SCARCITY AFFECT DEMAND?
•If there is a scarcity of an item, the demand
goes up.
•Ex. Gasoline

HOW DOES A BOYCOTT AFFECT DEMAND?
• If an item is being boycotted, there is little to no
demand for the item.
• Ex. During the Montgomery bus boycott, there
was little or no demand for the Montgomery bus
system.

HOW DOES THE WAR IN AFGHANISTAN
AFFECT DEMAND?
• Increased demand for war-related resources
• Ex. Metal (bullets, vehicles), cloth (uniforms), gas
masks
• Increased demand for news
• Ex. News interruptions during television shows,
new news stations, internet sites.