1. Demand

2. Supply and Demand Economics in a market economy, at its most basic & fundamental form is SUPPLY & DEMAND.

3. Demand Perspective Economics from the perspective of the consumer

4. DEMAND Quantity of goods and services that a consumer is WILLING and ABLE to purchase at various prices

5. DEMAND – 3 Components Able Willing Quantities Purchased at Various Prices

6. Demand - Able You must have enough money to make the purchase. If you can’t afford something (a private jet, for instance), you don’t have an effective demand for it.

7. DEMAND - Willing You must be willing to make the purchase. If you’re not willing to spend your income on it, you do not have an effective demand for it.

8. DEMAND - Quantities purchased at Various Prices Qty Demanded changes when price changes

9. Demand Schedule List of quantities that would be purchased at various prices in table format

11. Demand Schedule Price Quantity Purchased Weekly $20 $25 $30 $35 21 18 15 12

12. Demand Curve Demand curve plots these (from Demand Schedule) points Shows graphically the relationship between price & quantity demanded

13. Demand Curve Vertical Axis - Prices Horizontal Axis - Quantity Demanded

14. Law of Demand Inverse Relationship Between Prices and Quantity Demanded: Price Increases -> Less Quantity Demanded Price Decreases -> More Quantity Demanded

15. Demand Curve (Inverse Relationship) Demand Price Quantity

16. Reasons Why The Demand Line Is Downward Sloping Law Of Diminishing Marginal Utility Income Effect Substitution Effect

18. Marginal Utility Marginal – A small change Utility = Usefulness or Satisfaction Marginal Utility is the amount of satisfaction derived from 1 additional unit of a product

19. Law of Diminishing Marginal Utility As additional units of a product are consumed during a given period of time, the additional satisfaction derived from the good decreases

20. Law of Diminishing Marginal Utility Utility Units of Goods

21. Proves Inverse Relationship between Prices and Quantity Demanded b/c… At higher quantities, people want it less and so they’ll be less willing to pay higher prices

24. Income Effect The effect that increasing or decreasing prices have on the purchasing power of your income

25. Income Effect Cont ’ d What’s the Purchasing Power of $5 (your income) for the items on the dollar menu? allows you to be able to purchase 5 items What if the dollar menu became the half dollar menu? What if the dollar menu became the $2 menu? Price changes affect the buying power of your INCOME & thus your ability & willingness to purchase products

26. At Higher Prices, people’s incomes will be ABLE to buy LESS Proves Inverse Relationship between Prices & Quantity Demanded b/c…

27. Substitution Effect Change in the combination of goods purchased as a result of increasing or decreasing relative prices

28. Substitution Effect Cont ’ d What might people do if the price of movie theater tickets go up to $15? Get more Angel Tickets Buy more DVDs Go see more Plays or Stand-Up Comedy Acts

29. At higher prices, people will substitute that product with cheaper substitutes Proves Inverse Relationship between Prices & Quantity Demanded b/c…

30. Homework: “ Demand 3 Paragraphs ” Explain in your own words each in a separate paragraph The Income Effect Diminishing Marginal Utility The Substitution Effect Each of the paragraphs must include an ORIGINAL example that is explained

31. Determinants of Demand

32. Change in Quantity Demanded v. Change in Demand

33. Change in Quantity Demanded Caused by an increase or decrease in PRICE Causes movement ALONG the demand line Price Quantity Demanded/Purchased Point A Point B

34. Change in Demand Caused by 1 or more determinants of demand Causes a shift of the ENTIRE demand line Price Quantity Purchased/Demanded

35. Determinants of Demand Demand changes even if there is no change in price It will shift the entire demand line

36. The Determinants Consumer income Consumer attitude Price of a complimentary product Price of a substitute Population Weather Expectations

37. Change in Income Generally, an increase in income leads to an increase in demand. This is b/c consumers are more willing and able to buy more products Can you think of any products that would be an exception to this statement?

39. Change in Income Cont ’ d Normal goods- Demand increases as income increases Inferior goods- Demand decreases as income increases. Ex. Ground Meat

40. Change in Income Cont ’ d If someone who was unemployed for 2 yrs finds employment at a solid-paying job, what will happen to his/her demand for normal goods? What will happen to his or her demand for inferior goods like canned goods from a generic producer?

41. Changing Attitudes Tastes and Preferences Trends Fads

42. Changing Attitudes Cont ’ d List in your notes 5 examples of trends and fads that have come and gone or are currently in but you expect will end in the near future

43. Trends/Fads That Have Come and Gone

44. Change in Price of a Complementary Good Complementary goods- Products that are used together. List 4 Examples

45. Complimentary Goods Cont ’ d If the price of peanut butter was to increase, what would happen to the qty demanded for peanut butter? Qty Demanded for Peanut Butter will DECREASE What will happen to the demand for Jelly? Demand for Jelly will DECREASE

46. Complimentary Goods Cont ’ d If the price of Hot Dogs decreases, what will happen to the qty demanded for Hot Dogs? Qty Demanded for Hot Dogs will INCREASE What will happen to the demand for Hot Dog Buns? Demand for Hot Dog Buns will INCREASE

47. Change in Price of a Complimentary Good Cont ’ d If qty demanded changes (up or down) for an original good, than the demand changes for the complimentary good in the SAME way

48. Complimentary Goods Cont ’ d In Price for an Original Good Qty Demanded for the Original Good Demand for the Complimentary Good The OPPOSITE of each is TRUE

49. Change in Price of a Substitute Substitute goods- Products similar enough they can replace the other List 4 Examples

50. Substitute Goods Cont ’ d If the price of margarine goes up, what will happen to the qty demanded for margarine? Qty demand for margarine will DECREASE What will happen to the demand for butter? The demand for butter will INCREASE

51. Changing Price of Substitute If qty demanded changes (up or down) for an original good, than the demand changes for the Substitute good in the OPPOSITE way

52. In Price for an Original Good Qty demanded for the Original Good Demand for the Substitute Good The OPPOSITE of each is TRUE Substitute Goods Cont ’ d

53. Population Changes Changes to population #s is a determinant of demand. Why? In your notes, explain why population changes would have an effect on demand. Use 1 example and explain it.

54. Weather Weather is a determinant of demand. Why? In your notes, explain why weather would have an effect on demand for many products. Use 1 example and explain it.

55. Expectations For Future Income When consumers are pessimistic about their future incomes, the overall level of demand for goods and services in the economy decreases. The opposite is true.

56. Expectations Cont ’ d Expectations for Future Income = Demand for goods and services Expectations for Future Income = Demand for goods and services

57. InIn Times Past Really Good White Beans Existed Income Tastes & Preferences Related Goods Change in Price of Substitute Goods Change in Price of Complementary Goods Weather # of Buyers Expectations

58. Demand Shifts & Elasticity of Demand

59. The Determinants of Demand change demand at EVERY price This can be represented on a Demand Graph

60. Graph: Increase in Demand - Right Using your first graph and a pencil, draw a second line that would represent an INCREASE in demand. Name this line D 2

61. Graph: Decrease in Demand - Left Using your second graph and a pencil, draw a second line that would represent a DECREASE in demand. Name this line D 2

62. Hold up the appropriate shift that represents the effect of the comeback of bell- bottoms

63. Demand Curve: Tastes and Preferences Price Quantity D1 D2

64. Hold up the appropriate shift that represents the effects of a job demotion due to a business consolidation

65. Decrease in Demand: Income Price Quantity D2 D1

66. The price of Pepsi goes up. Hold up the appropriate shift that represents effect on Coca-Cola

67. Substitutable Goods: Demand will go up for Coke Price Quantity D1 D2

68. Price Elasticity of Demand Draw two graphs (both on the same side of the paper), one with a steep slope and one with a gradual slope

69. Elasticity Elasticity means RESPONSIVENESS We measure responsiveness

70. Price Elasticity of Demand Measurement of how responsive the quantity purchased changes when there is a change in price

71. Price Elasticity of Demand Cont ’ d Equation: % change in quantity demanded % change in price

72. Demand Elastic There are products where if the price changes, the Qty Demand will change SIGNIFICANTLY. These products are said to have ELASTIC demand

73. Elastic Demand Price is elastic if calculated value of price elasticity (equation) is greater than one

74. Products W/ Elastic Demand Non-necessity There are readily available substitutes for the product The product’s cost represents a large portion of consumers’ income Car Lunch Meat Movie Theater Tickets

75. Elastic Demand Price Quantity D

76. Inelastic Demand Inelastic implies less sensitivity to change in price Price inelastic if calculated value of price elasticity (equation) is less than one As the price of a good increases the quantity demanded decreases minimally

77. Products w/ Inelastic Demand A Necessity There are few or no readily available substitutes for the product The product’s cost represents a small portion of consumers’ income Water Gasoline Candy

78. Inelastic Demand Price Quantity D

79. Unitary Price Elasticity (Unit Elastic) % change in the quantity demanded equals % change in price

80. Total Revenue Total amount of money a company receives from its sales Total Revenue = price x quantity sold Quantity sold is dependent on price

81. Relationship between Price, Elasticity, Total Revenue Elastic DemandInelastic Demand Decreasing Price Increases Total Revenue Decreasing Price Decreases Total Revenue Increasing Price Decreases Total Revenue Increasing Price Increases Total Revenue