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Define the following terms: Hold for discussion Write the answers to these: Write the answers to these: Law of Demand: Law of Demand: Substitution Effect:

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Presentation on theme: "Define the following terms: Hold for discussion Write the answers to these: Write the answers to these: Law of Demand: Law of Demand: Substitution Effect:"— Presentation transcript:

1 Define the following terms: Hold for discussion Write the answers to these: Write the answers to these: Law of Demand: Law of Demand: Substitution Effect: Give example Substitution Effect: Give example Diminishing Marginal Utility: Give example Diminishing Marginal Utility: Give example Purchasing Power: Purchasing Power:

2 Changes in Demand- Shifts Warm up: Describe the Law of Demand, include the substitution effect and income effect in the description.

3 Changes in Demand Demand Shifts: Time allows factors other than price to influence demand significantly. Demand Shifts: Time allows factors other than price to influence demand significantly. In Economics these factors can shift the entire demand curve of a product to the right or to the left. In Economics these factors can shift the entire demand curve of a product to the right or to the left.

4 Changes in Demand Determinants of DemandFactors that can cause the entire demand curve to shift to either the right or left. Determinants of DemandFactors that can cause the entire demand curve to shift to either the right or left. 1.Consumer tastes and preferences 2.Market size 3.Income 4.Prices of related goods 5.Consumer expectations

5 Determinants of Demand 1.Consumer Tastes and Preferences: ex. Changes in music preferences If a groups popularity risesdemand curve shifts to the right If a groups popularity risesdemand curve shifts to the right If a groups popularity declinesdemand curve shifts to the left. If a groups popularity declinesdemand curve shifts to the left.

6 Determinants of Demand 2.Market SizeThe size of a market tend to affect demand. Markets expand and contract Markets expand and contract Nike launches new advertising campaign for its SHOX running shoes. Nike launches new advertising campaign for its SHOX running shoes. If successful, curve shifts to right If successful, curve shifts to right

7 Determinants of Demand Government Policy can affect size of marketsChina trade policy example Government Policy can affect size of marketsChina trade policy example New Technology can affect market size New Technology can affect market size Ex. Invention of video and internet cell phones Ex. Invention of video and internet cell phones Old cell phone technologydemand curve shifts to the left. Old cell phone technologydemand curve shifts to the left. New video technologydemand curve shifts to the right. New video technologydemand curve shifts to the right.

8 Determinants of Demand 3.IncomeHigher incomes generally allows people to spend more money for goods and services which causes the demand curve to shift to the right.

9 Determinants of Demand 4.Prices of Related GoodsA change in a products price can affect demand for the products related goods. Ex. Butter/MargarineMargarine is substituted for butter when price of butter goes up. Ex. Butter/MargarineMargarine is substituted for butter when price of butter goes up. Complementary GoodsGoods that are commonly used with other goods. Complementary GoodsGoods that are commonly used with other goods. Ex. Paint / Paintbrushes Ex. Paint / Paintbrushes Price of paint increasesdemand for paint and paintbrushes decreases Price of paint increasesdemand for paint and paintbrushes decreases

10 Determinants of Demand 5.Consumer ExpectationsYour expectations for more future income influences your purchases today. Ex. Anticipate a raise in your salary OR Ex. Anticipate a raise in your salary OR If you anticipate being laid off ! If you anticipate being laid off !

11 Demand Shifts-Examples Tell the determinant and show what will happenshift right or left? Price of Artificial Sweetener Increases what happens to sugar demand? Price of Artificial Sweetener Increases what happens to sugar demand? Price Quantity

12 Demand Shifts-Examples Tell the determinant and show what will happenshift right or left? 1950s Musicals become the rage among year olds. Show what might happen to DVD Sales in this category. 1950s Musicals become the rage among year olds. Show what might happen to DVD Sales in this category. Price Quantity

13 Demand Shifts-Examples Tell the determinant and show what will happenshift right or left? The government does a retroactive tax cut accompanied by a $1500 rebate check for everyone over 18. What happens to demand for movie tickets? The government does a retroactive tax cut accompanied by a $1500 rebate check for everyone over 18. What happens to demand for movie tickets? Price Quantity

14 Demand Shifts-Examples Tell the determinant and show what will happenshift right or left? Detroita rumor spreads that GM is insolvent (doesnt have sufficient money) and will have to close down 80% of its plants. What happens to demand for work shoes? Detroita rumor spreads that GM is insolvent (doesnt have sufficient money) and will have to close down 80% of its plants. What happens to demand for work shoes? Price Quantity

15 Demand Shifts-Examples Tell the determinant and show what will happenshift right or left? The price of motor oil for automobiles becomes 10x more expensive. What happens to demand for gasoline? The price of motor oil for automobiles becomes 10x more expensive. What happens to demand for gasoline? Price Quantity


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