1. Law of Demand
E. 11, 14, 16, 17

2. Objectives
Students will… Examine the relationship between price and quantity demanded Analyze how demand schedules relate to demand curve Draw and explain shifts in demand curves

3. How prices are determined (big picture)
Interaction of buyers/sellers determines the prices of most goods as well as what quantity of a good will be produced.
Buyers demand goods  sellers supply those goods  agreement on a price and quantity

4. Warm up-Demand Survey!
As a group, list 6 reasonable prices you might except someone to pay for your assigned item.
List these six prices in the column titled “Price Range” on the table below.
Be sure to list from highest to lowest.
You will individually survey ten people in the class not in your group. Ask each of them what is the highest price they would pay for your item. Keep a running tally in the middle column.
When you finish, add the tallies for each price and write that number in the “totals” column. (Don’t worry about “Actual Demand” yet.)

5. Fourth block Laptop 37-inch flatscreen TV New Car
Shirt from a Dept. Store
Large Bag of Potato Chips
Jet Ski

6. # Who would Pay This at Highest Price
“Actual demand”
Demand is a cumulative total here because those who are willing to pay a high price will definitely also be willing to pay for the same item at a lower price. Add the number from the next row to the number in the previous row. Once you get this new total, write it in that row. Next, add the next row’s number to the new total you just got. Keep adding cumulatively like this to get the “Actual Demand” column.
Price Range
# Who would Pay This at Highest Price
Totals
Actual Demand
Highest
$6.00 I 1 $5
III 3 4 $4 II 2 6 $3 7 $2 9
Lowest $1 10

7. Graphing the data
Price Range
Actual Demand
$6.00 1
$5.00 4
$4.00 6
$3.00 7
$2.00 9
$!.00 10
Label the market graph provide3d based on your demand data
Price goes on the Y-axis, quantity demanded goes on the x-axis
Make a dot on the graph for each “actual demand” value and connect the dots

8. What relationship does your graph illustrate between “quantity demanded” and “price”?

9. What is demand?
Demand – the desire to own something and the ability to pay for it.

10. Law of Demand
Consumers buy more of a good when its price decreases and less when its price increases. Whether your income is $10 or $10 million, the price of a good will strongly influence your decision to buy. (consumer behavior) – What’s a term we can use to describe this?
PRICE
As price goes down….
DEMAND
Quantity demanded goes up.
DEMAND
Quantity demanded goes down.
PRICE
As price goes up….

11. Consumer Behavior Patterns
Law of Demand – as the price of a good gets higher and higher, fewer of us are actually willing to buy it.
2 patterns that actually overlap
Substitution Effect – when consumers react to an increase in a good’s price by consuming less of that good an more of other goods.
Income effect – change in consumption resulting from a change in real income.

12. Substitution effect
Price of pizza goes up, pizza becomes more expensive compared to other foods like tacos or salads.
B/c of this, consumers have an incentive to buy an alternative food choice as a substitute for pizza.
Result: a drop in the amount of pizza demanded
Which will do what to the price?

13. Substitution effect Can also apply to a drop in prices
If price of pizza drops, it becomes cheaper compared to alternatives
Which will do what to quantity demanded?

14. Income Effect Rising prices typically make us feel poorer as consumers
Movie tickets, shoes, food
Your budget just won’t buy as much as it used to
Ex: You buy fewer slices of pizza w/o increasing your purchases of other foods.
If price falls, you suddenly feel wealthier. May or may not change your buying habit, but if you buy more, that’s income effect.

15. Demand Schedule
To have demand for a good, you must be willing to buy it at the specified price. [You want the good and you can afford to buy it.]
Car, laptop, overseas trip
If you can’t afford them, you do not demand them
Demand Schedule - table that lists the quantity of a good a person will buy at each different price.
Individual – you/consumer
Market demand schedule: shows quantity of a good all consumers in a market will buy at each different price.

16. Individual Demand Schedule Market Demand Schedule
Price of a slice of pizza
Quantity Demanded per Day
0.50 5
300
$1.00 4
250
$1.50 3
200
$2.00 2
150
$2.50 1
100
$3.0
$3.00 50

17. Demand Graph/Curve
Plot points based on the numbers from the demand schedule
Only the individual side
Demand curve: graphic representation of a demand schedule

18. ALWAYS DOWNWARD SLOPING
Demand Curve
ALWAYS DOWNWARD SLOPING

19. Shifts of the Demand Curve
Think back to the PPF… What caused it to shift?
What do you think will cause the demand curve to shift?

20. Change in demand
The demand curve is accurate only as long as there are no changes other than price that could affect the consumer’s decision.
Demand can change in two ways:
1. Change in “quantity demanded”
This is just a change along the demand curve
2. Change in “demand”
This is a shift of the entire curve; Left or right
A shift in the demand curve means that at every price, consumers buy a different quantity than before.

21. CHANGES in Demand There are 6 factors that can cause a change in demand
Consumers enter the market – increase in birth rate, influx of immigrants, students arriving in a college town, etc.
Consumers have more money
Consumer expectations – expectation of higher prices in the future cause immediate demand to increase; expectations of lower prices cause immediate demand to fall (Black Friday).
Fads - Items may become more popular due to a shift in tastes. This may happen because of fads, culture, beliefs, advertising. (Livestrong bracelets, Silly Bandz, Barney, One Direction, bell-bottom jeans, slap bracelets, FitBits, etc.)
Price of the substitute increases
Price of a complementary good – When goods are used together, a decrease in price of one makes both more appealing.

22. GRAB WHITEBOARDS, MARERS, ERASERS

23. Interpret headlines from butter market Increase, decrease, or no change? NAME ONE THE OF THE 6 FACTORS THAT AFFECT EACH
PEOPLE ARE MAKING MORE MONEY THIS YEAR
MORE IMMIGRANTS COMING TO THE AREA
MARGARINE PRICES RISE
BREAD PRICES RISE
BUTTER PRICES RISE
COOKING WITH BUTTER IS THE LATEST CRAZE

24. The Law of Demand states that when prices are relatively low
People are less likely to purchase G/S
It is nearly impossible for companies to make money
Demand is relatively high
Demand is relatively low
Law of demand states that when prices are low,
People are more likely to purchase G/S
Demand is high demand is low
3. When the quantity demanded increases, it means that
A larger amount of goods are demanded because the price is lower than before
A larger amount of good are demanded because the price is higher than before
The entire demand curve shifts rights
The entire demand curve shifts left
4. When demand decreases, it means that
A smaller amount of goods are demanded because the price is lower than before
A smaller amount of goods are demanded because the price is higher than before
The entire DC shifts right

25. 5. Which of the following events would cause demand to increase?
Product goes out of style
Price of substitute good decreases
Consumers have more money
6. Which of the following events would cause demand to decrease?
Consumers leave the market
Product is a fad
Consumers expect good things to happen in the future
Suppliers enter the market

26. DEMAND PRACTICE