2.3.1: Demand

• Demand is the relationship between price of a good and the quantity people are willing and able to buy at a range of different prices.

• Law of Demand: when prices go up, quantity demanded goes down. And when prices go down, quantity demanded goes up.

Change in Demand:

• If something other than the price of a good changes, the quantity demanded at all prices will change.

• In the scenario of two substitutes: If the price of one drops, the demand will increase. Thus, the demand of the other will drops, leading to a shift of the curve to the left.

Price Elasticity of Demand:

• A measure of how much consumers’ willingness and ability to purchase a good changes when price changes

• It indicates the size of change in quantity demanded to the size of price change

• To find this measurement, we use the formula: Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price.

• If value is > 1, it is elastic and consumers respond heavily to price changes, indicating that a small change in price leads to a larger change in the quantity demanded.

• If < 1, it is inelastic and consumers respond less significantly to price changes, meaning that a change in price results in a smaller change in the quantity demanded.

• It is determined on how many substitutes for that item there are.