1. AGENDA Thurs 2/9 & Fri 2/10 Turn in HW: Q# 2-6 p 70
Assignment #5: Intro to Demand Review
Journal Entry # 7: What’s in a headline?
Demand Shifts
Elasticity
HW: Read p 71-84
Q#2-6 p76 ; Q#1-5 p84
DUE: MONDAY/TUESDAY 2/13-14

2. Intro to Demand Review (A#5)
With a Partner: Each of you will have your own paper
Create a chart and graph for your own item. Create a value for the first item through the sixth.
Once you’ve created your own table and chart answer these questions:
What would have to change to make your demand of the item change (Other than price, because price only changes the quantity or amount)?
Write a short paragraph describing your graph and chart. Why is the sixth item worth less than the first? Why did you choose the values that you did? (in other words put your graph into words).

3. Journal Entry #7: What’s in a headline?
Identify the service/product most closely associated with each headline.
Describe what you think will happen to demand of that item based on the headline.
Hoverboards that actually hover? They're here
JetBlue's redesign - more legroom, HD screens, and Wi-Fi
Seahawks fans create petition to ban Cam Newton from playing in Seattle
Ford recalls 400,000 Ranger pickup trucks to replace Takata air bags
Apple's iPhone success may be reaching its peak
Nearly 300,000 civilian drones registered in US in 30 days

4. What does it mean when the demand curve shifts?
A shift to the right indicates that demand has increased.
buyers are willing and able to purchase more of a good at all price points
A shift to the left indicates that demand has decreased.
buyers are willing and able to purchase less of a good at all price points

5. What a Shift in the Demand Curve Means
Demand  then
Demand Curve shifts to the right 
Demand  then
Demand Curve shifts to the left

6. Demand curve shift

7. What Factors Cause Demand Curves to Shift?
Income
Tastes & Preferences (Consumer Attitudes)
Number of Buyers
Price of Related Goods
Price Expectation

8. Factors Causing Demand to Shift
Income – as their income rises, people can buy more of any particular good
Having the ABILITY does NOT always mean having the WILLINGNESS to buy more.
normal good – demand as income and vice versa
(CDs, luxury cars)
inferior good – demand as income
(hot dogs, used cars)

9. Factors Causing Demand to Shift
Tastes & Preferences (Consumer attitudes)– a change in preferences shifts the demand curve
Number of buyers – more buyers = higher demand
as more people move into an area rent prices go up

10. Factors Causing Demand to Shift
Price of Related Goods – two types of related goods
substitutes – the demand for one good moves in the same direction as the price of the other (as P of coffee increases, the D of tea as a substitute will go up - explain)
complements – goods that are consumed together (as P of gas goes up, D of SUVs go down)
Price Expectations - if consumers expect the price to increase, they try to buy more now before the price rises.

11. A change in demand versus a change in quantity demand
A change in demand refers to a shift in the demand curve.
A change in income, preferences, price of related goods, number of buyers, or price expectation can change demand.
A change in quantity demanded refers to a movement along a demand curve.
Only price of the good can directly cause a change in the quantity demanded of a good.

12. Elasticity of Demand
Elasticity of demand is the relationship between the percentage change in quantity demanded and the percentage change in price expressed as a ratio

13. Percentage of change in QD Percentage change in Price
Elasticity of Demand
Elasticity of Demand =
Percentage of change in QD Percentage change in Price

14. Elastic demand is when the quantity demanded changes by a greater % than the % change in price.
Inelastic demand is when the quantity demanded changes by a smaller % than the % change in price.
Unit elastic is when the quantity demanded changes by the same % as the % change in price.

15. Elasticity of Demand
elastic demand – when QD change is greater than the percentage change in price
( QD  15% > P  10% )
( QD  15% > P  10% )

16. Elasticity of Demand
inelastic demand – when QD change is less than the percentage change in price
( QD  5% < P  10% )
( QD  5% < P  10% )

17. Elasticity of Demand
unit-elastic demand – when QD changes by the same percentage as price
( QD  10% = P  10% )
( QD  10% = P  10% )

18. Four Determinants of Elasticity of Demand
Number of substitutes
the demand for goods with many substitutes likely to elastic
ex: Bread. There are many brands of bread.
the demand for goods with very few or no substitutes is likely to be inelastic
ex: Heart medicine. Very few substitutes and people need it to be well.

19. Four Determinants of Elasticity of Demand
Luxuries v. Necessities
luxuries are goods that people feel they do not need to survive
demand is elastic
Ex. Lamborghini
necessities are good that people feel they need to survive
demand is more likely to be inelastic
Ex. Heart Medicine

20. Four Determinants of Elasticity of Demand
Percentage of income spent on the Good
elastic – buyers are more responsive to price changes in goods when they spend a larger percentage of their income
inelastic – demand for goods on which consumers spend a small percentage of income

21. Four Determinants of Elasticity of Demand
Time
as time passes buyers have greater opportunities to change quantity demanded in response to price change

22. The Relationship between Elasticity and Total Revenue=
Price of a Good X
Number of Goods Sold

23. The Relationship between Elasticity and Total Revenue
Case 1: Elastic Demand and Price Rise
if demand is elastic, a price rise will lead to a decline in total revenue

24. The Relationship between Elasticity and Total Revenue
Case 2: Elastic Demand and Price Demand
elastic demand + price decline = Total Revenue will increase

25. The Relationship between Elasticity and Total Revenue
Case 3: Inelastic Demand and Price Rise
Inelastic demand + price decline = total revenue

26. The Case of Unit-Elastic Demand
any change in price will be equal to, but move in the opposite direction of, the change in quantity demanded
there will be no change in total revenue

27. The Relationship between Elasticity and Total Revenue
Case 4: Inelastic Demand and Price Decline
Inelastic demand + price decline = total revenue

28. The Case of Unit-Elastic Demand
any change in price will be equal to, but move in opposite direction of, the change in quantity demanded
there will be no change in total revenue
ex:

29. Homework Read p 71-84 Q#2-6 p76 ; Q#1-5 p84
DUE: MONDAY/TUESDAY 2/13-14

30. References
Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National Textbook Company .