Lesson 2.2: Demand and Quantity Demanded
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LVL I Answer the following questions as you read:
1. Define demand.
2. What does the law of demand state?
3. What is the difference between a change in demand versus a change in quantity demanded?
4. How do buyers impact prices?
5. List the non-price determinants (shifters) of demand and define each one.
6. Provide an example of a complementary good.
7. How does the substitution effect impact demand?
8. What impact do changes in consumer income have on demand?
1. Define demand.
2. What does the law of demand state?
3. What is the difference between a change in demand versus a change in quantity demanded?
4. How do buyers impact prices?
5. List the non-price determinants (shifters) of demand and define each one.
6. Provide an example of a complementary good.
7. How does the substitution effect impact demand?
8. What impact do changes in consumer income have on demand?
SSEMI2 Explain how the law of demand, the law of supply, and prices work to determine production and distribution in a market economy.
A. Define the law of supply and the law of demand.
The law of demand says that as the price of a good rises the quantity of the good consumers are willing and able to buy will decrease. The graph below illustrates this law.
SSEMI1 Describe how households and businesses are interdependent and interact through flows of goods, services, resources, and money.
A. Identify the determinants (shifters) of demand (e.g., changes in related goods, income, consumer expectations, preferences/tastes, and number of consumers) and illustrate the effects on a supply and demand graph.
The determinants of demand describe the types of changes in a market that will cause the entire demand curve to move to the right or to the left. In other words, all consumers of a good, service, or productive resource will be willing and able to purchase more or less of a product at all prices in the market. The shift will cause a change in the equilibrium price and equilibrium quantity in the market.
Change in Price of Related Goods
1. Decrease in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market falls, then the demand for the product in this market will rise and shift to the right.
2. Increase in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market rises, then the demand for the product in this market will fall and shift to the left.
Change in Price of Related Goods
1. Increase in the Price of a Substitute Good - If the price of a good, service, or resource that is consumed in place of the product in this market rises, then the demand for the product in this market will rise and shift to the right.
2. Decrease in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market falls, then the demand for the product in this market will rise and shift to the right.
3. Decrease in the Price of a Substitute Good - If the price of a good, service, or resource that is consumed in place of the product in this market decreases, then the demand for the product in this market will fall and shift to the left.
Change Consumer Income
1. Increase in Consumer Income – If consumers in a market for a normal good have an increase in income, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumer Income - If the income of consumers in the market for a normal good falls, then the demand for the product in this market will fall and shift to the left.
Change Consumer Expectations
1. Consumers expect the price of a product to rise in the future - If consumers expect the price of a product to rise in the future, they will demand more in the present before the price rises. This will cause demand to increase and shift to the right.
2. Consumers expect the price of a product to fall in the future - If consumers expect the price of a product to fall in the future, they will demand less in the present while the market price is higher. This will cause demand to decrease and shift to the left.
Change Consumer Tastes/Preferences
1. Increase in Consumer Taste for a Product – If consumers in a market for a good or service have an increase in their taste for that product, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumer Taste for a Product – If consumers in a market for a good or service have a decrease taste for a product, then the demand for the product in this market will rise and shift to the right.
Change in Number of Consumers in the Market
1. Increase in Consumers in the Market – If more consumers enter the market for a product, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumers in the Market – If consumers leave the market for a product, then the demand for the product in this market will fall and shift to the left.
Change in Price of Related Goods
1. Decrease in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market falls, then the demand for the product in this market will rise and shift to the right.
2. Increase in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market rises, then the demand for the product in this market will fall and shift to the left.
Change in Price of Related Goods
1. Increase in the Price of a Substitute Good - If the price of a good, service, or resource that is consumed in place of the product in this market rises, then the demand for the product in this market will rise and shift to the right.
2. Decrease in the Price of a Complementary Good - If the price of a good, service, or resource that is consumed with the product in this market falls, then the demand for the product in this market will rise and shift to the right.
3. Decrease in the Price of a Substitute Good - If the price of a good, service, or resource that is consumed in place of the product in this market decreases, then the demand for the product in this market will fall and shift to the left.
Change Consumer Income
1. Increase in Consumer Income – If consumers in a market for a normal good have an increase in income, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumer Income - If the income of consumers in the market for a normal good falls, then the demand for the product in this market will fall and shift to the left.
Change Consumer Expectations
1. Consumers expect the price of a product to rise in the future - If consumers expect the price of a product to rise in the future, they will demand more in the present before the price rises. This will cause demand to increase and shift to the right.
2. Consumers expect the price of a product to fall in the future - If consumers expect the price of a product to fall in the future, they will demand less in the present while the market price is higher. This will cause demand to decrease and shift to the left.
Change Consumer Tastes/Preferences
1. Increase in Consumer Taste for a Product – If consumers in a market for a good or service have an increase in their taste for that product, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumer Taste for a Product – If consumers in a market for a good or service have a decrease taste for a product, then the demand for the product in this market will rise and shift to the right.
Change in Number of Consumers in the Market
1. Increase in Consumers in the Market – If more consumers enter the market for a product, then the demand for the product in this market will rise and shift to the right.
2. Decrease in Consumers in the Market – If consumers leave the market for a product, then the demand for the product in this market will fall and shift to the left.
LVL II Application
1. Draw a graph for an increase in quantity demanded
2. Draw a graph for a decrease in quantity demanded.
3. Draw a graph for an increase in demand.
4. Draw a graph for a decrease in demand.
5. Draw a demand graph for movie popcorn if the price of movie tickets goes down.
6. Draw a demand graph for peanut butter if the price of jelly goes up.
7. Draw a demand graph for restaurants if people move out of Atlanta.
8. Betty Ferin, who sells roses in Confederation Square, wants to sell her entire stock by the end of the day. She begins by charging $5 a bouquet. As the day advances, she notices that her roses are moving very slowly. It seems as if she will sell only half her stock by the end of the day. What should Betty do to rectify the situation?
9. Petit Prince Bookstore sells crayons and coloring books. Guernica Art Supplies has just offered the bookstore a large quantity of crayons at a fraction of the regular price. How might the bookstore use its inexpensive crayons to boost its sales of coloring books?
1. Draw a graph for an increase in quantity demanded
2. Draw a graph for a decrease in quantity demanded.
3. Draw a graph for an increase in demand.
4. Draw a graph for a decrease in demand.
5. Draw a demand graph for movie popcorn if the price of movie tickets goes down.
6. Draw a demand graph for peanut butter if the price of jelly goes up.
7. Draw a demand graph for restaurants if people move out of Atlanta.
8. Betty Ferin, who sells roses in Confederation Square, wants to sell her entire stock by the end of the day. She begins by charging $5 a bouquet. As the day advances, she notices that her roses are moving very slowly. It seems as if she will sell only half her stock by the end of the day. What should Betty do to rectify the situation?
9. Petit Prince Bookstore sells crayons and coloring books. Guernica Art Supplies has just offered the bookstore a large quantity of crayons at a fraction of the regular price. How might the bookstore use its inexpensive crayons to boost its sales of coloring books?