2 DEMAND FUNCTIONS AND DEMAND CURVES Purpose: To emphasize the distinction between movements along demand curves and shifts of demand curves. To show using graphs how to compute quantities demanded. Computer file: demand98.xIs Instructions and background information: Open the Excel file demand98.xIs, and choose whether you want to do the problems as practice, or whether you want to take the test to hand in for credit. If you choose the test option, you will be prompted to enter your name and student number. The demand for any good is the amount consumers want to buy and are able to buy in a particular period of time. The basic model of demand says that the amount demanded of any good depends on the good's own price, consumer income, the prices of substitutes and complements, consumer preferences, and perhaps other factors. In this example, the spreadsheet shows a hypothetical demand curve for spaghetti in San Francisco, measured in plates per day. Demand depends on the price of spaghetti, average annual money income of consumers, the price of tacos, and the price of wine. You can change all of the prices and income and the spaghetti demand will be updated. The graph of the demand curve will be redrawn to show the effects of your changes. Economists make an important distinction between the effects on the amount demanded of changing a good's own price, and the effects on the amount demanded when one of the other determinants of demand varies, such as income. When a good's own price changes, consumers move along a particular demand curve. When any other determinant changes, the demand curve shifts. Changes in a good's own price are said to cause a "change in quantity demanded", while changes in other factors are said to cause a "change in demand". Experiment with the worksheet by changing the current values of prices and income and seeing the effect on demand and on the graph of the demand curve. Your task in doing these problems is to figure out and record the effects of the variables that affect demand. 2-1