Chapter 8 Section 2 The Demand Curve and

Chapter 8, Section 2 The Demand Curve and Elasticity of Demand

Section Preview In this section, you will learn more about the relationship between price and demand.

Graphing the Demand Curve A demand curve is a graph that shows the relationship between the price of an item and the quantity demanded. REMEMBER FROM SECTION 1: The law of demand states that as price goes up, quantity demanded goes down. As price goes down, quantity demanded goes up.

• Economist can show the relationship between a change in quantity demanded and a change in demand using a demand curve.

• A demand schedule is a table reflecting quantities demanded at different possible prices. • A demand curve shows the quantity demanded of a good or service at each possible price. Demand curves slope downward, clearly showing the inverse relationship.

Determinates of Demand A change in the demand for a particular item shifts the entire demand curve to the left or right. Factors that can affect demand for a specific product or service: 1. Changes in people’s tastes and preferences 2. Changes in income 3. Changes in population 4. The availability and price of substitutes 5. The price of complementary goods (The decrease in the price of one good will increase the demand for its complementary. ) 6. Changes in consumer expectations.

The Price Elasticity of Demand Elasticity of demand measures how much the quantity demanded changes when price goes up or down. • For some goods, a rise or fall in price greatly affects the amount people are willing to buy. This economic concept is referred to as elasticity. • The measure of how much consumers respond to a given change in price is referred to as price elasticity of demand.

• Luxury items, vacations, high-end electronics, even coffee are examples of elastic goods/services and have a very elastic demand. • Staple foods, medicine, spices have an inelastic demand. A price change has little impact on the quantity demanded by consumers.

• Three factors determine the price elasticity of demand for an item:

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