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BRIONES, ERICA MAE

BSLM 2A

1. Define the following terms:


a. Quantity demanded the amount of a good or service that buyers (or a buyer) are
willing and able to purchase at a specific price during a specific period of time.
b. Demand a schedule showing the amounts of a good or service that buyers (or a
buyer) wish to purchase at various prices during some period of time.
c. Price Elasticity of Demand the ratio of the percentage change in quantity
demanded of a product or resource to the percentage change in its price; a measure of
the responsiveness of buyers to a change in the price of a product or resource.
Formula: PEoD = (% Change in Quantity Demanded)/(% Change in Price)
Formula for the percentage change in price: [Price(NEW) - Price(OLD)] /
Price(OLD)
Income Elasticity of Demand the ratio of the percentage change in the quantity
demand of a good to the percentage change in consumer income; measures the
responsiveness of consumer purchases to income changes.
Formula: IEoD = (% Change in Quantity Demanded)/(% Change in Income)
Formula for the percentage change in income: [Income(NEW) - Income(OLD)] /
Income(OLD)
d. Cross Elasticity of Demand the ratio of the percentage change in quantity
demanded of one good to the percentage change in the price of some other good. A
positive coefficient indicates the two products are substitute goods; a negative
coefficient indicates they are complementary goods.
Formula: CPEoD = (% Change in Quantity Demand for Good X)/(% Change in
Price for Good Y)
Formula for the percentage change in price: [Price(NEW) - Price(OLD)] /
Price(OLD)
The formula for the change in quantity demanded: [QDemand(NEW) QDemand(OLD)] / QDemand(OLD)
2. Show a demand curve depicting (a) movement along the curve and (b) shift in the curve.
Site reasons for each.
A demand curve is a curve used to illustrate demand.

A movement on the demand curve is caused by a change in the price of the good or
service. The change of price affects the demand of a price of a good or service and is
represented by a movement along the line of a demand curve.

BRIONES, ERICA MAE


BSLM 2A

A shift on the demand curve occurs when non-price factors kick into the mix and
increases the demand for the price of goods or services this changes the quantity
demanded at each price, which means that the entire line (that represents quantity
demanded at each price) will have to move. This is a shift of the entire curve and not
just movement along the line.
3. What are the 7 non-price determinants of demand? Explain each. Show graphically.
a. Tastes. A favorable change in consumers tastes (preferences) for a product a change
that makes the product more desirable means that more of it will be demanded at
each price. Demand will increase; the demand curve will shift rightward. An
unfavorable change in consumer preferences will decrease demand, shifting the
demand curve to the left.

b. Number of Buyers. An increase in the number of buyers in a market is likely to


increase demand; a decrease in the number of buyers will probably decrease demand.

BRIONES, ERICA MAE


BSLM 2A

c. Income. As incomes increase beyond some point, the demand for used clothing,
retread tires, and third-hand automobiles may decrease, because the higher incomes
enable consumers to buy new versions of those products.

d. Substitutes. When two products are substitutes, an increase in the price of one will
increase the demand for the other. Conversely, a decrease in the price of one will
decrease the demand for the other.

e. Complements. If the price of a complement goes up, the demand for the related good
will decline. Conversely, if the price of a complement falls, the demand of a related
good will increase.

f. Unrelated Goods. A change in the price of one has little or no effect on the demand
for the other.
g. Consumer Expectations. Changes in consumer expectations may shift demand. A
newly-formed expectation of higher future prices may cause consumers to buy now in
order to beat the anticipated price rises, thus increasing current demand.

BRIONES, ERICA MAE


BSLM 2A