1. MASON EDUCATION

2.  Bell J  Vocab  Ch. Breakdown  Lecture notes  Surveying Demand handout

3.  List two items that are in high demand  List two items that are not in demand

4. Objectives  Explain the law of demand  Understand how the substitution effect and the income effect influence decisions  Create a demand schedule for an individual and a market  Interpret a demand graph using demand schedules

5.  Buyers demand goods, sellers supply those goods, and the interactions between the two groups lead to an agreement on the price and the quantity traded.  Demand is the desire to own something and the ability to pay for it.

6.  The law of demand says that when a good’s price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it.  The price of a good will strongly influence your decision to buy

7.  The law of demand is the result of two separate patterns of behaviors that can overlap  Substitution effect  Income effect  Both describe two ways a consumer can change their spending patterns

8. The Substitution effect  When the price of a good rises the demand for that good goes down  The incentive for consumers to buy a substitute good at a lower price goes up The Income effect  Rising prices make you feel poorer, rising prices don’t allow you to buy as much as normal  Cutbacks in purchases due to a increase in price without purchasing substitutes

9.  Economist measure consumption in the amount of good that was bought not the amount of money spent to buy it.  Even though people spend more money when prices rise the quantity demanded goes down. This is the law of demand.  How does the substitution & income effect influence decisions when prices go down?

10.  When prices fall you substitute your chosen good for alternatives because of the drop in price  When prices fall you feel wealthier and chose to buy more of a chosen good than normal due to the drop in price.

11.  A demand schedule is a table that lists the quantity of a good that a person will purchase at each price in a market. (Smaller #’s)  A market demand schedule shows the quantities demanded at each price by all consumers in the market. (Larger #’s)  A market demand schedule helps predict the total sales at several different prices  Law of demand exhibited

12.  Plotting figures from a demand schedule onto a graph would create a demand curve  A demand curve is a graphic representation of a demand schedule  Vertical Axis: Price  Bottom to top/ lowest-highest  Horizontal Axis: Quantity  Left to right/ lowest-highest

14.  The demand graph only shows relationship between price and quantity of purchased goods  All of factors are assumed constant  ex: income, substitutes price, quality  Demand schedules and curves reflect law of demand  A market demand curve can predict peoples buying habits based on $ increase or decrease  Market demand curves are very accurate for specific market conditions

15.  Complete the Analyzing Tables questions  Pg. 84  1-3

16.  Section Assessment  Don’t write questions (1-6)

17.  Objectives:  Understand the difference between a change in quantity demanded and a shift in the demand curve  Identify the determinants that create changes in demand and that can cause a shift in the demand curve  Explain how the change in the price of one good can affect demand for a related good.

18.  A demand curve is accurate only as long as there are no changes other than price  Ceteris paribus- “all other things held constant.”  When price change moves along the curve to a new the quantity demanded  Increase in $=Decrease in the quantity demanded  Decrease in $=Increase in the quantity demand

19.  When we drop the ceteris paribus rule and allow other factors (not $) to change we no longer move along the demand curve  The entire demand curve shifts (demand at every $ shifts)  Change in demand  Right shift -Increase in Demand  Left shift-Decrease in Demand

20.  Several other factors can cause demand for a good to change  These change can create a change in demand not just a change in quantity demanded  Income  Consumer Expectation  Population  Consumer taste and Advertising

21.  Income  A consumers income effects his/her demand  Normal goods-demand rises when income increases  Inferior goods-demand rises when income decreases  Consumer Expectation  Our expectation about the future can affect our demand for certain goods today.  Expected price rise-demand rises  Expected price drop-demand drops

22.  Population  Changes in the size of the population will also affect the demand for most products  Population trends can have a strong effect on certain goods  Ex: Homes, apartments, trailers (hurricane Katrina)  Consumer taste and Advertising  Economist cannot always isolate the reasons why fads begin advertising and publicity often play an important role

23. Population Consumer taste and Advertising

24.  The demand curve for one good can be affected by change in the demand for another good.  Two types of related goods  Complements-are two goods that are bought and used together.  Skis & Ski boots  Substitutes-goods used in place of another  Skis & Snowboards

25.  Economist describe the way that consumers respond to price changes as elasticity of demand.  Your demand for a good that you will keep buying despite a price increase is inelastic  If you buy much less of a good when the price increases your demand is elastic  Highly elastic demand for a good is very responsive