Bellringer

1
Bellringer

1. Define demand in you own words.
2. List 5 things that are currently in high demand.

2
Demand

• Chapter 4, Section 1

3
Microeconomics

• part of economics that deals with behavior and
  decision making by small units, such as
  individuals and firms.

4
Demand

• Demand - The desire, ability, and willingness to
  buy a product.

5
Is this a demand or not?

• You have a desire to buy this car.
• You do not have the ability (enough money) to buy
  it.
• Therefore, you are not willing to go into debt
  for it.

• 2008 Toyota Highlander Hybrid

6
Is it a demand or not?

• Super Bowl tickets

• You have enough money to pay for Super Bowl
  tickets
• You do not want to go to the Super Bowl.
• You are not willing to buy tickets to something
  you do not want to attend.

7
Is it a demand or not?

• Wii

• You have enough money for a Wii and you really
  want to get one.
• Therefore, you are willing to buy one right now.

8
Demand Schedule

• A listing that shows the quantity demanded at all
  prices that might prevail in the market at a
  given time. Draw this demand curve.

9
(No Transcript)
10
Demand Curve

• Tells the quantity that consumers will demand at
  each and every price.

11
The Law of Demand

• Chapter 4, Section 2

12
Law of Demand

• Demand for an economic product varies inversely
  with its price.
• As price goes up, quantity demanded for a good
  goes down.

13
Quantity Demanded

• Individual points on the demand curve that show
  how much of a product is demanded at a particular
  price.

14
Change in Quantity Demanded

• Income Effect -change in qd because of a change
  in the consumers real income.
• Ex Bar of Soap
• Normally 5 for 1 bar
• On sale for 1/bar
• Buy 5 bars

15
Change in Quantity Demanded

• Substitution Effect -the change in quantity
  demanded because of the change in relative price
  of the product
• Ex Movie
• The price of a movie rental changes from 5 to
  15
• The cost of going to a movie is 10
• You would go to the movie theatre and pay 5 less
  than renting one
• Ex Books
• Paperback books are 11
• You may buy fewer books
• You may buy more magazines because they only cost
  4.

16
You go to Wal-Mart planning to buy one box of
CHEEZ-ITs for 5. They are on sale so you buy
two.

• Is this an example of income effect or
  substitution effect?

17
The price of On Demand movies on your DVR drops
from 3.99 to 2.50. A movie from BlockBuster
costs 2.99 to rent. You choose the On Demand
movie.

• Is this an example of substitution effect or
  income effect?

18
Change in Demand

• Change in Demand - the entire demand curve
  shifts
• Increase right
• Decrease - left

• Change in qd is because of a change in the price
  of a product.

19
Change in Demand
20
Bellringer 7

• Practice sheet on change in demand

21
Reasons for change in demand

1. Income
2. Market Size
3. Consumer Tastes
4. Consumer Expectation
5. Substitute Goods
6. Complementary Goods

22
Income

• If a consumers income changes, either higher or
  lower, that persons ability to buy goods and
  services also changes.

23
Income

• Normal Goods- goods that consumers demand more of
  when their incomes rise.

• Inferior Goods-
• goods that consumers demand less of when
  their incomes rise.

24
Market Size

• If the number of consumers increases or
  decreases, the market size also changes, thus
  causing a corresponding change in demand.

25
Consumer Tastes

• When a good or service enjoys high popularity,
  consumers demand more of it at every price.
• When a product loses popularity, consumers demand
  less of it.

26
Consumer Expectations

• Your expectations of the future can affect you
  buying habits of today.

27
Substitute Goods

• products that can be used in place of another
  product.

28
Substitute Goods cont

• Butter
• P D

• Margarine
• D

29
Complementary Goods

• products related in such a way that an increase
  in the price of one reduces the demand for both

30
Complementary Goods cont

• Digital Camera
• P D

• Memory Card
• D

31
Complementary and Substitute GoodsOther
Examples

• Complementary
• -Razors w/blades
• -Swiffer w/refills

• Substitute
• -Sweet-N-Low vs. Equal
• -Bayer vs. Equate

32
Practice sheet on compliments and substitutes
33
Elasticity of Demand
34
Demand Elasticity

• Demand Elasticity the extent to which changes
  in price cause changes in quantity demanded.
• How much will a change in price affect the demand
  for a product?

35
Elasticity

• Elastic when a small change in price causes a
  large change in quantity demanded.

• Inelastic a change in price causes a relatively
  small change in quantity demanded.

36
Elastic or Inelastic?

• Even if the price rose sharply, diabetics would
  still need the same amount that they did before.
• If the price were to drop, they would not need
  any more insulin than their required dosage.
• Demand remains relatively constant.

• Insulin

37
Elastic or Inelastic?

• The price of a brand-named laptop goes down by
  20.
• The quantity demanded goes up 30.

• Laptop

38
Elasticity cont

• Doctors services are inelastic.
• To Increase revenue increase price.
• Gas Station service is elastic
• To increase revenue decrease price

39
Specific vs. General Market

• Elastic -the product a specific individual
  (particular gas station) sells
• or
• Inelastic -to a general product (gasoline in
  general).

40
In a particular area (specific market), we might
respond/buy more if the price fell to 86cents.
41
Specific Market

• The demand for gasoline at a particular gas
  station is likely to be very elastic.
• If they raise prices by 10, they would sell
  less. If they drop prices by 10, people would
  go out of their way to buy cheap gas.

42
General Market

• The demand in gasoline in general is inelastic.
• If every gas station raised prices by 10, people
  would have to pay the higher price or drive less.
  
• Chances are that most people would not reduce
  their demand for gas by much.

43

• Governments tax inelastic goods because the
  increase in price does not change the quantity
  demanded.

44
Determinants of Demand Elasticity

• Can the purchase be delayed?
• Yes or No
• Is it a large proportion of income?
• Yes or No
• Are there good substitutes?
• Yes or No?
• 2 yeselastic
• 2 Noinelastic

45
Can the purchase be delayed?
46
Are there good substitutes?
47
Does it take a large portion of your income?
48
Which of the 2 is more elastic?

• College textbook required for a class
• Or
• A novel for fun reading

49
Which scenario would be more elastic?
50
Which is more elastic?

• Calculator for fun or for a test?

51
3 question practice sheet
52
Total Revenue Test

• Total Revenue P x Qd
• If the total revenue goes up, and price goes
  down, it is elastic.
• If the total revenue goes down after the price
  goes down, it is inelastic.
• See page with total revenue test.
• Total Revenue practice

53
Supply

• Chapter 5, Section 1

54
Law of Supply

• If prices are high, suppliers will offer greater
  quantities for sale.
• If prices are low, they will offer smaller
  quantities for sale.
• Supply and Price have a parallel relationship.

55
Quantity Supplied

• The amount producers bring to market at any one
  price.

56
Change in Quantity Supplied

• The change in amount offered for sale in response
  to a change in price.

57
Change in Supply

• When producers offer different amounts of
  products for sale at all possible prices in the
  market.

58
Change in Supply
59
Change in Supply
60
Change in Supply

• Cost of Inputs if it cost more to make, price
  will increase.
• Productivity supply decreases when workers are
  unmotivated
• Technology an increase in technology increases
  supply

61
Change in Supply

• Number of Sellers supply increases when
  competition increases.
• Taxes and Subsidies
• Subsidies government payments to individuals
  and businesses to encourage or protect a certain
  type of economic activity.

62
Changes in Supply

• Expectations anticipation of future events
• Government Regulations can decrease supply.

63
Elasticity of Supply

• Supply elasticity measure of the change in
  quantity supplied is affected by change in price.