econ 3

True Demand

Requires both desire for a good/service and the ability to pay.

Substitution Effect

When consumers switch to a cheaper alternative if the price rises.

Income Effect

When a price change affects consumers’ purchasing power.

Individual Demand Schedule

Shows how one person’s demand changes with price.

Market Demand Schedule

Combines the demand of all consumers in the market.

Business Priority

Owners care more about the market demand schedule because it shows total sales potential.

Demand Schedule Parts

Price (vertical column) and quantity demanded (horizontal column), showing an inverse pattern.

Demand Graph Parts

Vertical axis = price, horizontal axis = quantity demanded; slopes downward like an “L.”

Demand Curve Shifters

Income, consumer tastes, population size, prices of related goods, and future expectations.

Non

Price Determinant

Tax Holiday

A temporary removal of sales tax, which increases demand.

Inferior Good

A good bought more when income decreases (e.g., instant noodles).

Elastic Good Example

Movie tickets (I stop buying if price rises too much).

Inelastic Good Example

Coffee (I keep buying even if price rises).

Price Perception

Small increases (e.g., $0.25) feel acceptable, while larger dollar increases (e.g., $2.50) feel costly even if both are 50%.

Cruise Example

Elasticity affected by availability of substitutes (alternative vacations).

Gasoline Example

Elasticity affected by necessity (few substitutes).

Time and Elasticity

Demand becomes more elastic over time as people adjust and find alternatives.

Business and Elasticity

Owners must know elasticity to decide if raising prices increases or decreases revenue.s.