Change in Demand

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Change in Demand
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a) Normal Goods

• Goods for which demand increases as income
  increases

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b) Inferior goods

• Goods for which demand decreases as income
  increases

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II) Changing Attitudes

• A) Change in attitude leads to a change in demand
• 1) Can be because of social mores/fashion

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2) Advertising
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III) Changing Substitutes

• A) Demand for substitute products is related
• 1) Price of butter rises, demand for margarine
  will increase.
• 2) Substitutes are similar enough that one can
  replace the other

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IV) Changing Complementary Goods

• A) A decrease in price of one good increases
  demand in the other
• 1) Hot dog prices drop, demand for hot dog buns
  will increase.
• 2) These are goods that are almost exclusively
  used together.

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V) Change in Demand vs. Change in Qty. demanded
A
P
P
B
D1 D2
D
QD
QD
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VI) Elasticity of Demand

• A) Degree of change in quantity consumed compared
  to change in price.
• 1) Product with high elasticity shows great
  change.
• 2) Product with low elasticity shows little
  change.

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b) Price Elasticity of Demand
Percentage Change in Quantity
Demanded Percentage Change
in Price
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1) If greater than 1, its price elastic
P
D
QD
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2) If less than 1, its price inelastic
P
D
QD
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3) If equal to 1, its unitary price elasticity
P
D
QD