Bell Ringer: Three people enter a Mazda dealership all interested in buying a brand new car. All three initially stop to look at the Mazda RX8. The first person tells the salesperson that they “really like the RX8” but they “don’t have any money today”, and are “saving their money for a purchase within the next 6 months”. The second person tells the dealer that they “have the money to buy”, they “are going to ultimately buy RX8”, but they are shopping various dealerships and are “not willing to buy today”. The third person tells the dealer that they “love the RX8!”, they “have the money” and they “want to buy it today.” Answer the following questions based on the above scenario: 1. Next to each customer, check each of the following that apply to their situation: The Market Forces of 2. Which customer do think was most appealing to the salesperson, and why? 3. Which customer would you have helped first, and why? CustomerDesireWillingnessAbility 1 2 3

Understanding Demand Demand – desire, ability, and willingness to buy a good/service The amount of a product that a consumer (individual) or group of consumers (market) will purchase at a given price Microeconomics – The study of the economic behavior and decision making of small units, such as individuals, families, and firms (businesses)

Application Chart – Demand Choose 3 items that you want and write them down in the first box, whether you can afford them or not in the next, and whether you are willing to spend the money on them in the last. Lastly decide if the item is truly in demand by you! Desired ItemAbility to AffordWillingnessDemand (Yes or No)

The Law of Demand Law of Demand –prices are lower, consumers will buy more; prices are higher, consumers will buy less. Inverse relationship between price and the QD of a product. Prices strongly influence the quantity demanded of a product Price Prices of Products Decreases Demand Quantity Demanded Decreases Price Prices of Product Increases Demand Quantity Demanded Increases

Change in Quantity Demanded Price Goes Down Homer buys more!

Change in Quantity Demanded Price Goes UP Homer buys less!

1. The Income Effect Income Effect – the change in consumption resulting from a change in price, “more bang for your buck” Consumers feel richer when prices drop, poorer when prices rise. Both affect the Quantity Demanded of a product. Think how you feel during Happy Hour at Sonic! Why does the Law of Demand occur?

2. Substitution Effect Substitution Effect – when consumers react to an increase in a good’s price by consuming less of one good and more of other goods Why does the Law of Demand occur?

Utility = Satisfaction We buy goods because we get utility from them The law of diminishing marginal utility states that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit. Discussion Questions: 1.What does this have to do with the Law of Demand? 2.How does this effect the pricing of businesses? 3. Law of Diminishing Marginal Utility Why does the Law of Demand occur? U-TIL-IT-Y

Change N/A $54 $33 $15 $10 $5 Can you see the Law of Diminishing Marginal Utility in Disneyland’s pricing strategy?

The Demand Schedule Demand Schedule - a table that lists the quantity of a good that an individual will purchase at each price in a market – Demand Schedule = Your Demand Market Demand Schedule - lists the quantity of a good that all consumers will purchase at each price in the market – Market Demand Schedule = Everyone’s Demand

The Demand Curve A demand curve is a graphical representation of a demand schedule. The demand curve is downward sloping showing the inverse relationship between price (on the y- axis) and quantity demanded (on the x-axis) When reading a demand curve, assume all outside factors, such as income, are held constant. (This is called ceteris paribus) Let’s draw a new demand curve for cereal… 12

GRAPHING DEMAND Q o $ Price of Cereal Quantity of Cereal Demand Schedule Draw this large in your notes 13 Price Quantity Demanded $30 $2.502 $24 $1.506 $18 $.5010 $.2512

GRAPHING DEMAND Q o Price of Cereal Quantity of Cereal Demand Schedule Demand $ Price Quantity Demanded $30 $2.502 $24 $1.506 $18 $.5010 $.2512

Where do you get the Market Demand? Q Billy PriceQ Demd $51 $42 $33 $25 $17 JeanOther Individuals PriceQ Demd $50 $41 $32 $23 $15 PriceQ Demd $59 $417 $325 $242 $168 PriceQ Demd $510 $420 $330 $250 $180 Market 3 P Q 2 P Q 25 P Q 30 P $3 DDDD