Economics 1509 http:students.resa.netmilewski

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Economics 1/5/09 http//students.resa.net/milewsk
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• OBJECTIVE Demonstration of Chapter3 and begin
  examination of demand.
• I. Administrative Stuff
• -attendance
• -distribution of test
• -Journals 1-12 Due at the end of class!
• II. Chapter3 Test
• III. Journal 12 pt.A
• -Read Profiles in Economics p.94
• -Answer question 1 p.94
• IV. Journal 12 pt.B
• -notes on demand

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Calculator

• BRING YOUR CALCULATOR THIS WEEK!!!!

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What is demand?

• Demand the desire, ability, and willingness to
  buy a product.
• In a market economy, you compete with other
  consumers who demand the same products as you.
• If a lot of people demand the same product, the
  price will rise.
• If there are a lot of the same product, and very
  few people who demand it, the price will fall.

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Demand Schedule

• demand schedule - a listing that shows the
  various quantities demanded of a particular
  product at all prices that might prevail in the
  market at a given time.

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Demand Curve

• demand curve - a graph showing the quantity
  demanded at each and every price that might
  prevail in the market.

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Simplistic view of demand

• As price increases, demand decreases
• As price decreases, demand increases
• This is an inverse relationship
• When an inverse relationship is graphed, the
  slope is negative

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Marginal Utility

• Utility the amount of usefulness or
  satisfaction that someone gets from the extra use
  of a product
• Marginal utility the extra usefulness or
  satisfaction a person gets from acquiring or
  using one more unit of a product

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Diminishing Marginal Utility

• The more and more of a product we acquire, the
  extra satisfaction we get from using additional
  quantities of a product begins to diminish.

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Example 1

• How much satisfaction would you get from this?

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Example 1

• How much satisfaction would you get from this?

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Example 1

• How much satisfaction would you get from this?

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Example 2
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Example 2
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Example 2
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Demand Changes

• Change in quantity demanded movement along the
  demand curve
• Change in demand shift in the demand curve

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Economics 1/6/09 http//students.resa.net/milewsk
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• OBJECTIVE Examine the factors that affect
  demand.
• I. Journal 13 pt.A
• -Read The Business Week Newsclip p.100
• -Answer questions (1-3) p.100
• II. Return of Chapter3 Test
• III. Journal 13 pt.B
• -notes on demand changes
• NOTICES
• -Bring a calculator this week
• -Progress Reports printed tomorrow.

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Demand Changes

• Change in quantity demanded movement along the
  demand curve
• Change in demand shift in the demand curve

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Change in Quantity Demanded

• When a change in price causes a change in
  quantity demanded.
• In this case, a lower price leads to an increase
  in quantity demand.

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Change in quantity demanded

• Income effect the change in quantity demanded
  because of a change in price alters consumers
  real income.
• Substitution effect the change in quantity
  demanded because of a change in the relative
  price of a product

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Example of the income effect

• If the price of a movie drops from 9 to 3, you
  might see more films because you have to work 2/3
  less than you did before to see one movie.
• When the price of goods and services drop and
  your income stays the same, you can buy more. It
  has a similar effect of a pay raise if prices
  remain the same.

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Example of the substitution effect

• If Wendys raised the price of their .99 extra
  value menu to 1.99 you may choose to substitute
  Wendys food with McDonalds 1.19 menu.

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Change in Demand

• When there is no change in price, but there is a
  change in the amount demanded at each and every
  price level.
• In this case, price didnt change but more was
  demanded.

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Change in Demand

• Consumer income as income goes up, the amount
  of goods and services you can buy also goes up
• Consumer tastes advertising, news reports, and
  style changes cause consumers to demand more or
  less of a product
• Substitutes products that can be used in place
  of other products i.e. butter/margarine

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• Complements goods that increase our use of
  other goods
• Change in expectations the willingness to buy
  more or less of a product based on future
  predictions
• Number of consumers as more consumers enter the
  market demand curve will shift to the right
  vice versa.

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Change in Demand v. Change in Quantity Demanded
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Complements

• What are the complements for Tony the Tiger?
• If Larrys Foodland put milk on sale, what might
  this do to Tony the Tiger?

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How Milk Prices affect Tony
Cereal
Milk

• The decrease in the price of milk will increase
  the demand for cereal.

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Substitutes

• What are the substitutes for this Fabio endorsed
  product?
• What would happen if Larrys Foodland increased
  the price of butter?

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How higher butter prices help Fabio
Margarine
Butter

• An increase in the price of butter will increase
  demand for the substitute good, I Cant Believe
  Its Not Butter

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Economics 1/7/09 http//students.resa.net/milewsk
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• OBJECTIVE Examine demand elasticity.
• I. Journal 14 pt.A
• -Read Cybernomics Spotlight p.(104-105)
• 1.) How did Amazon start?
• 2.) Why has Amazon been so successful?
• 3.) What are Amazons plans for the future?
• II. Journal 14 pt.B
• -notes on elasticity
• III. Math Practice
• -complete worksheet on demand

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Elasticity

• Elasticity a measure of responsiveness that
  tells how a dependent variable such as quantity
  responds to an independent variable such as
  price.
• 3 Types of Demand Elasticity
• -Elastic Demand
• -Inelastic Demand
• -Unit Elastic Demand

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Elastic Demand

• A small change in price causes a big change in
  quantity demanded.
• Slope is less than -1
• Example
• -fresh foods (green beans, tomatoes, apples)

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Inelastic Demand

• A big change in price causes a small change in
  quantity demanded.
• Slope is greater than -1
• Examples
• -table salt
• -gasoline

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Unit Elastic Demand

• Any change in price causes a proportional change
  in quantity demanded.
• Slope equals -1

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Total Expenditure Test

• To determine total expenditure, multiply the
  price of a product by the quantity demanded for
  any point along the demand curve.
• Example
• -at 20 quantity demanded is 5
• -formula p x q total expenditure
• 20 x 5 100
• By selecting two points along the demand curve,
  the elasticity of demand can be determined.

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Determining Elasticity
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Elasticity Formulas

• Formula to determine elasticity
• change in Q elasticity
• change in P
• Formula to determine change in P or Q
• (NEW P or Q) 1 decimal equivalent
• (OLD P or Q)
• Move decimal two places to the right to get
  change in P or Q.

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Example 1

• The manufacturer of a pain medication reduces the
  price for medication by 30 and the percent
  change in quantity demanded is 30. What is the
  elasticity for the pain medication?
• change in Q 30
• change in P -30
• Elasticity -1

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Example 2

• A Chinese Buffet increased prices from 4.95 all
  you can eat to 5.95 all you can eat. The number
  of big eaters went from 58 to 36. What is the
  elasticity for All You Can Eat Chinese?
• First we need to figure out the change in P
  the change in Q.

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Chinese Buffet

• change in P
• NEW P 5.95
• OLD P 4.95
• (5.95) 1
• (4.95)
• .20
• 20

• change in Q
• NEW Q 36
• OLD Q 58
• (36) 1
• (58)
• -.37
• -37

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Chinese Buffet

• change in Q -37
• change in P 20
• -37
• 20
• Elasticity -1.85

• The elasticity for the Chinese Buffet is elastic

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If you owned the Chinese Buffet, would you keep
the price of the Buffet at 5.95?

• 5.95 x 36 214.20
• 4.95 x 58 287.10

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Example 3

• The managers of a rock band plan to give a
  concert in an auditorium that seats 800 people.
  They believe that they can sell 600 tickets at
  20 each or 800 tickets at 15 each.
• Create a demand schedule and a demand curve for
  concert tickets. Then, using the total
  expenditure test, determine the elasticity and
  advise the managers on how much they should
  charge for the concert.

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Economics 1/8/09http//students.resa.net/milewski

• OBJECTIVE Working with demand elasticity.
• I. Administrative Stuff
• -attendance
• -follow ups
• II. Math Practice with Economics
• III. Working with Demand
• -change in demand v. change in quantity demanded
• IV. Demand Quiz

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Economics 1/9/09 http//students.resa.net/milewsk
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• OBJECTIVE Examine the concepts of demand,
  change in demand, change in quantity demanded,
  and elasticity.
• I. Administrative Stuff
• -Attendance
• II. Quiz5 Demand
• -questions about demand concepts
• III. Mindjogger
• -video quiz on Chapter4 Demand