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Review with your Partners

Learn about the determinants of demand, the concept of substitute goods and complementary goods, and the elasticity of demand. Discover how changes in price and other factors affect consumer demand. A comprehensive review for understanding the relationship between price and quantity demanded.

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Review with your Partners

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  1. Review with your Partners Name the five determinants of Demand. What is a substitute good? What is a complimentary good? Why do we calculate slope? What is the relationship between price and quantity demand? If your slope answer is 5/-25, what does it mean? What way does the demand curve shift if there is a decrease in demand? Name 10 college mascots.

  2. Chapter 4 Changes in Demand

  3. Demand Shifts • Determinants of Demand – factors that shift our demand curve – to the right or to the left • Shift to the right = increase in demand by the consumers • Shift to the left = decrease in demand by the consumers • 5 determinants of demand

  4. Determinants of Demand • Consumer tastes and preferences • Market size • Income • Prices of related goods • Consumer expectations

  5. Substitute Goods • Goods that can be used to replace the purchase of similar goods when prices rise

  6. Complementary Goods • Goods that are commonly used with other goods. • Example – peanut butter and jelly

  7. Elasticity of Demand Chapter 4

  8. Elasticity of Demand • The degree to which changes in a goods price affect the quantity demanded by consumers. • The demand for a product can be either inelastic or elastic.

  9. Elastic Demand • Exists when a small change in a goods price causes a major, opposite change in the quantity demanded. • Not necessary • Available substitute goods • Examples – Food and clothes P d QD

  10. Inelastic Demand • Exists when a change in a goods price has little impact on the quantity demanded. • Necessary good • Few substitute goods available • Insulin for diabetes, • EpiPen for allergies • Gas, toothpaste P d QD

  11. % change in QD %change in P Calculate % change by taking the difference of the two numbers and divide it by the original starting number! Example – if QD changes from 12million to 14million and Price changes from 5 dollars to 3 dollars. 2/12 = .167 = .4175 2/5 .4 Measuring Elasticity

  12. What does your answer mean? • x>1 = elastic • x<1= inelastic • x=1= unit elastic

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