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1)What made Beanie Babies so special? 2)Why did you want a Beanie Baby instead of another cute stuffed animal? 3)Why would some people buy 2 or more of.

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Presentation on theme: "1)What made Beanie Babies so special? 2)Why did you want a Beanie Baby instead of another cute stuffed animal? 3)Why would some people buy 2 or more of."— Presentation transcript:

1 1)What made Beanie Babies so special? 2)Why did you want a Beanie Baby instead of another cute stuffed animal? 3)Why would some people buy 2 or more of the exact same Beanie Baby? Warm-Up

2 Understanding Demand After completing this lesson/assignment you will be able to: 1) Identify the determinants that create changes in demand and that can cause a shift in the demand curve. 2) Demonstrate which way a demand curve shifts given a specific event 3) Explain how the change in the price of one good can affect demand for a related good.

3 Key Vocabulary Review –Demand –Law of Demand –Substitution Effect –Income Effect –Ceteris Paribus New –Normal Good –Inferior Good –Complements –Substitutes Key Vocabulary

4 Increase in demand shifts right Q 0 Understanding Demand Shifts P

5 Decrease in demand shifts left Q 0 Understanding Demand Shifts P

6 Several factors, besides price, can lead to a change in demand. These are called the: “Non-price Determinants of Demand” Consumer tastes and preferences Prices of related goods Consumer expectations Income Market Size Government Regulation Understanding Demand Shifts

7 Consumer Tastes and Preferences (Advertising) Does it really matter is a truck is blue or red? What makes a Demand Curve Shift? Non-Price Determinants of Demand

8 Prices of related goods Substitute goods – margarine and butter. If butter increases in price the demand for margarine will increase as people switch to the lower priced substitute Complementary goods – goods that are commonly used with each other. Can you think of an example? What makes a Demand Curve Shift? Non-Price Determinants of Demand

9 Consumer Expectations If many people think they might lose their jobs the overall demand in the economy will go down. Overtime? If many people think the price of an item (say beanie babies) is going to go up they will increase the overall demand by purchasing more before the price increase. What if something goes on sale tomorrow? What makes a Demand Curve Shift? Non-Price Determinants of Demand

10 Income If you get a raise you will have more money to spend. If you lose your job your demand for all products that are not ‘needs’ will have to go down. What makes a Demand Curve Shift? Non-Price Determinants of Demand

11 Income Continued Income (con’t.) Normal Goods - a good that consumers demand more of when their incomes increase. –Clothes –DVD’s Inferior Goods - a good that consumers demand less of when their incomes increase. –Top Ramen –Powdered milk –Used books What makes a Demand Curve Shift? Non-Price Determinants of Demand

12 Market size/Population changes If there are a lot of people who need/want your product then the demand will be high. What makes a Demand Curve Shift? Non-Price Determinants of Demand

13 Consumer tastes and preferences Prices of related goods Substitute goods Complementary goods Consumer Expectations Income Normal goods Inferior goods Market Size Government Regulation What makes a Demand Curve Shift? Non-Price Determinants of Demand

14 1. Which of the following does not cause a shift of an entire demand curve? (a) a change in price (b) a change in income (c) a change in consumer expectations (d) a change in the size of the population 2. Which of the following statements is accurate? (a) When two goods are complementary, increased demand for one will cause decreased demand for the other. (b) When two goods are complementary, increased demand for one will cause increased demand for the other. (c) If two goods are substitutes, increased demand for one will cause increased demand for the other. (d) A drop in the price of one good will cause increased demand for its substitute. Multiple Choice Practice

15 1. Which of the following does not cause a shift of an entire demand curve? (a) a change in price (b) a change in income (c) a change in consumer expectations (d) a change in the size of the population 2. Which of the following statements is accurate? (a) When two goods are complementary, increased demand for one will cause decreased demand for the other. (b) When two goods are complementary, increased demand for one will cause increased demand for the other. (c) If two goods are substitutes, increased demand for one will cause increased demand for the other. (d) A drop in the price of one good will cause increased demand for its substitute. Multiple Choice Practice

16 1. Which of the following does not cause a shift of an entire demand curve? (a) a change in price (b) a change in income (c) a change in consumer expectations (d) a change in the size of the population 2. Which of the following statements is accurate? (a) When two goods are complementary, increased demand for one will cause decreased demand for the other. (b) When two goods are complementary, increased demand for one will cause increased demand for the other. (c) If two goods are substitutes, increased demand for one will cause increased demand for the other. (d) A drop in the price of one good will cause increased demand for its substitute. Multiple Choice Practice

17 Whiteboard exercises Whiteboard Exercises: Bananas are found to cause cancer. What happens to the demand for bananas The Spirit Store puts all costumes on 50% sale today for Halloween. What happens to demand for costumes? Gas prices will double next week, what happens to demand for gas this week? Peanut Butter is on sale. What happens to the demand for peanut butter? What happens to demand for jelly? Small Pox hits, 25% population dies. What happens to demand for caskets? What happens to demand for all other goods? Will the Demand Curve shift? Which Way? Name the Non-Price Determinant of Demand

18 Whiteboard exercises Whiteboard Exercises: Price of paint goes up. What happens to demand for paint? What happens to demand for paintbrushes? Joe wins the lotto, what happens to his demand for all normal goods? What effect is taking place? What happens to his demand for inferior goods? Eating hot cheetos with cream cheese causes weight loss and extends life expectancy. What happens to the demand for cheetos? What happens to the demand for cream cheese? Why? Will the Demand Curve shift? Which Way? Name the Non-Price Determinant of Demand

19 Whiteboard exercises 1)Due to ________________you stop buying nail polish after the 120 th bottle, even though the price is only $.25. 2) Bart prices sky-rocket, so due to the __________________ you start taking the ferry to work. 3) You get a raise and buy a new car instead of a used car. This is due to the ________________. A used car is then considered a ___________ good. 4) Explain in complete sentences how the change in the price of one good can affect demand for a related good. 5) Why does the law of demand only apply in a free market economy? Explain in complete sentences. 6) Are there goods that do not obey the law of demand? Explain in complete sentences. Fill-in / Short Answer

20 Whiteboard exercises 1)Due to the law of diminishing utility you stop buying nail polish after the 120 th bottle, even though the price is only $.25. 2) Bart prices sky-rocket, so due to the substitution effect you start taking the ferry to work. 3) You get a raise and buy a new car instead of a used car. This is due to the income effect. A used car is then considered a inferior good. 4) Explain in complete sentences how the change in the price of one good can affect demand for a related good. If the price of a substitute good increases, demand for the product will increase. If the price of a complement good increases, demand for the product will decrease. Fill-in / Short Answer

21 5) Why does the law of demand only apply in a free market economy? Explain in complete sentences. People are free to purchase what they want in the quantities they want, making their decisions based on price or Non-price determinants. No government is controlling the marketplace. 6) Are there goods that do not obey the law of demand? Explain in complete sentences. If some “prestige” products prices are lowered the “cachet” goes away and demand decreases. Fill-in / Short Answer


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