NOTESHEET: DEMAND AND SUPPLY

DEMAND

• Demand: is the quantities that people are willing and able to buy at various prices.
• The Law of Demand: there is an inverse relationship between price and quantity demand
• (P^ Qv     or    Pv Q^)
• Change in price causes a change in quantity demand
• Determinates causes a change in demand. The are five specific ones: 
1.  Change in buyers taste. (ex. advertisement)
2. Change in the number of buyers. (ex. population)
3. Change in income: normal goods and inferior goods.
1. Normal goods- goods that buyers buy more of when there income issue rise.
2. Inferior goods- goods that buyers buy less of when there income rise. 
4. Change in the price of related goods: substitute good and complementary goods. 
1.  Substitute good- goods that serve roughly the same purpose to buyers. (ex. coca-cola and pepsi.)
2. Complementary goods- goods that are often consumed together. (ex. hamburger and fries)
5. Change in expectations- meaning change in the future but doesn't happen now. (ex. in can happen in 5 seconds, 2 minutes, or a year, etc.)
• Elasticity of demand(3) - measure of how consumers react to change in a price. 
1. Inelastic demand: Demand will not change or will change in very little regards of price
1. " Needs"
2. Few to no substitutes
3. Examples include: water, milk, soap, gas, insulin
4.  E < 1
2. Elastic demand: demand will change greatly if there is a change in price.
1. " Wants"
2. The are substitutes
3. Examples include: soda, steak, fur coat, etc. 
4. E > 1
3. Unitary demand: If we had a perfect world, it would equal to one.