Unit 2: Demand 1

Connection to Circular Flow Model 1.Do individuals supply or demand? 2.Do business supply or demand? 3.Who demands in the product market? 4.Who supplies in the product market? 2

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I am willing to sell several in AP Economics. How much will you pay? PriceQuantity Demanded Demand Schedule 4 $1,000 $500 $200 $50 $5 $1

DEMAND 5

Example of Supply You own an scrub brush and you are willing to clean toilets. How many toilets will you clean at these prices? Price per lawn mowed Quantity Supplied Supply Schedule 6 $1 $5 $20 $50 $100 $1000

Supply 7

LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls Price Quantity Demanded 8 There is an INVERSE relationship between PRICE and QUANTITY DEMANDED

Demand worksheet 9 If the price of CDs is $10, how many will people buy? _______ If the price of CDs is $20, how many will people buy? _______ If the quantity of CDs sold is 200, what is the price? _____ If the quantity of CDs sold is 100, what is the price? ______ Demand Schedule for CDs at School Quantity Demanded (monthly) Price (dollars) $15 $25

How many apples will students buy at 30 cents? How many apples will students buy at 80 cents? What effect does the price seem to have on the quantity of CDs and apples sold? Calculate total revenue (P X Q): If the price of apples is 30 cents, If 100 apples are sold, 10 Demand Schedule for Apples at School Quantity Demanded (weekly) Price (cents) Demand worksheet $75 $80

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Why does the Law of Demand occur? The law of demand is the result of three separate behavior patterns that overlap: 1.The Substitution effect 2.The Income effect 3.The Law of Diminishing Marginal Utility We will define and explain each… 12

 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 affect the pricing of businesses? 13 Why does the Law of Demand occur?

If the price goes up for a product, consumer buy less of that product and more of another substitute product, and vice versa. 1. The Substitution Effect 14 Why does the Law of Demand occur?

If the price goes down for a product, the purchasing power increases for consumers  allowing them to purchase more. 2. The Income Effect 15 Why does the Law of Demand occur?

 We buy goods because we get utility from them  The law of diminishing marginal utility states that as you consume more units of any same 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.How does it relate to the Law of Demand? 2.How does this affect the pricing of businesses? 16 Why does the Law of Demand occur?

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