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Economics 1509 http:students.resa.netmilewski

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It has a similar effect of a pay raise if prices remain the same. ... menu to $1.99 you may choose to substitute Wendy's food with McDonalds $1.19 menu. ... – PowerPoint PPT presentation

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Title: Economics 1509 http:students.resa.netmilewski


1
Economics 1/5/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Demonstration of Chapter3 and begin
    examination of demand.
  • I. Administrative Stuff
  • -attendance
  • -distribution of test
  • -Journals 1-12 Due at the end of class!
  • II. Chapter3 Test
  • III. Journal 12 pt.A
  • -Read Profiles in Economics p.94
  • -Answer question 1 p.94
  • IV. Journal 12 pt.B
  • -notes on demand

2
Calculator
  • BRING YOUR CALCULATOR THIS WEEK!!!!

3
What is demand?
  • Demand the desire, ability, and willingness to
    buy a product.
  • In a market economy, you compete with other
    consumers who demand the same products as you.
  • If a lot of people demand the same product, the
    price will rise.
  • If there are a lot of the same product, and very
    few people who demand it, the price will fall.

4
Demand Schedule
  • demand schedule - a listing that shows the
    various quantities demanded of a particular
    product at all prices that might prevail in the
    market at a given time.

5
Demand Curve
  • demand curve - a graph showing the quantity
    demanded at each and every price that might
    prevail in the market.

6
Simplistic view of demand
  • As price increases, demand decreases
  • As price decreases, demand increases
  • This is an inverse relationship
  • When an inverse relationship is graphed, the
    slope is negative

7
Marginal Utility
  • Utility the amount of usefulness or
    satisfaction that someone gets from the extra use
    of a product
  • Marginal utility the extra usefulness or
    satisfaction a person gets from acquiring or
    using one more unit of a product

8
Diminishing Marginal Utility
  • The more and more of a product we acquire, the
    extra satisfaction we get from using additional
    quantities of a product begins to diminish.

9
Example 1
  • How much satisfaction would you get from this?

10
Example 1
  • How much satisfaction would you get from this?

11
Example 1
  • How much satisfaction would you get from this?

12
Example 2
13
Example 2
14
Example 2
15
Demand Changes
  • Change in quantity demanded movement along the
    demand curve
  • Change in demand shift in the demand curve

16
Economics 1/6/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the factors that affect
    demand.
  • I. Journal 13 pt.A
  • -Read The Business Week Newsclip p.100
  • -Answer questions (1-3) p.100
  • II. Return of Chapter3 Test
  • III. Journal 13 pt.B
  • -notes on demand changes
  • NOTICES
  • -Bring a calculator this week
  • -Progress Reports printed tomorrow.

17
Demand Changes
  • Change in quantity demanded movement along the
    demand curve
  • Change in demand shift in the demand curve

18
Change in Quantity Demanded
  • When a change in price causes a change in
    quantity demanded.
  • In this case, a lower price leads to an increase
    in quantity demand.

19
Change in quantity demanded
  • Income effect the change in quantity demanded
    because of a change in price alters consumers
    real income.
  • Substitution effect the change in quantity
    demanded because of a change in the relative
    price of a product

20
Example of the income effect
  • If the price of a movie drops from 9 to 3, you
    might see more films because you have to work 2/3
    less than you did before to see one movie.
  • When the price of goods and services drop and
    your income stays the same, you can buy more. It
    has a similar effect of a pay raise if prices
    remain the same.

21
Example of the substitution effect
  • If Wendys raised the price of their .99 extra
    value menu to 1.99 you may choose to substitute
    Wendys food with McDonalds 1.19 menu.

22
Change in Demand
  • When there is no change in price, but there is a
    change in the amount demanded at each and every
    price level.
  • In this case, price didnt change but more was
    demanded.

23
Change in Demand
  • Consumer income as income goes up, the amount
    of goods and services you can buy also goes up
  • Consumer tastes advertising, news reports, and
    style changes cause consumers to demand more or
    less of a product
  • Substitutes products that can be used in place
    of other products i.e. butter/margarine

24
  • Complements goods that increase our use of
    other goods
  • Change in expectations the willingness to buy
    more or less of a product based on future
    predictions
  • Number of consumers as more consumers enter the
    market demand curve will shift to the right
    vice versa.

25
Change in Demand v. Change in Quantity Demanded
26
Complements
  • What are the complements for Tony the Tiger?
  • If Larrys Foodland put milk on sale, what might
    this do to Tony the Tiger?

http//americanheritage.us/Images/CAT_966941.jpg
27
How Milk Prices affect Tony
Cereal
Milk
  • The decrease in the price of milk will increase
    the demand for cereal.

28
Substitutes
  • What are the substitutes for this Fabio endorsed
    product?
  • What would happen if Larrys Foodland increased
    the price of butter?

http//images.amazon.com/images/P/B00032CDPA.01-A3
CDPEGSIQM61V._SCLZZZZZZZ_.jpg
29
How higher butter prices help Fabio
Margarine
Butter
  • An increase in the price of butter will increase
    demand for the substitute good, I Cant Believe
    Its Not Butter

30
Economics 1/7/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine demand elasticity.
  • I. Journal 14 pt.A
  • -Read Cybernomics Spotlight p.(104-105)
  • 1.) How did Amazon start?
  • 2.) Why has Amazon been so successful?
  • 3.) What are Amazons plans for the future?
  • II. Journal 14 pt.B
  • -notes on elasticity
  • III. Math Practice
  • -complete worksheet on demand

31
Elasticity
  • Elasticity a measure of responsiveness that
    tells how a dependent variable such as quantity
    responds to an independent variable such as
    price.
  • 3 Types of Demand Elasticity
  • -Elastic Demand
  • -Inelastic Demand
  • -Unit Elastic Demand

32
Elastic Demand
  • A small change in price causes a big change in
    quantity demanded.
  • Slope is less than -1
  • Example
  • -fresh foods (green beans, tomatoes, apples)

33
Inelastic Demand
  • A big change in price causes a small change in
    quantity demanded.
  • Slope is greater than -1
  • Examples
  • -table salt
  • -gasoline

34
Unit Elastic Demand
  • Any change in price causes a proportional change
    in quantity demanded.
  • Slope equals -1

35
Total Expenditure Test
  • To determine total expenditure, multiply the
    price of a product by the quantity demanded for
    any point along the demand curve.
  • Example
  • -at 20 quantity demanded is 5
  • -formula p x q total expenditure
  • 20 x 5 100
  • By selecting two points along the demand curve,
    the elasticity of demand can be determined.

36
Determining Elasticity
37
Elasticity Formulas
  • Formula to determine elasticity
  • change in Q elasticity
  • change in P
  • Formula to determine change in P or Q
  • (NEW P or Q) 1 decimal equivalent
  • (OLD P or Q)
  • Move decimal two places to the right to get
    change in P or Q.

38
Example 1
  • The manufacturer of a pain medication reduces the
    price for medication by 30 and the percent
    change in quantity demanded is 30. What is the
    elasticity for the pain medication?
  • change in Q 30
  • change in P -30
  • Elasticity -1

39
Example 2
  • A Chinese Buffet increased prices from 4.95 all
    you can eat to 5.95 all you can eat. The number
    of big eaters went from 58 to 36. What is the
    elasticity for All You Can Eat Chinese?
  • First we need to figure out the change in P
    the change in Q.

40
Chinese Buffet
  • change in P
  • NEW P 5.95
  • OLD P 4.95
  • (5.95) 1
  • (4.95)
  • .20
  • 20
  • change in Q
  • NEW Q 36
  • OLD Q 58
  • (36) 1
  • (58)
  • -.37
  • -37

41
Chinese Buffet
  • change in Q -37
  • change in P 20
  • -37
  • 20
  • Elasticity -1.85
  • The elasticity for the Chinese Buffet is elastic

42
If you owned the Chinese Buffet, would you keep
the price of the Buffet at 5.95?
  • 5.95 x 36 214.20
  • 4.95 x 58 287.10

43
Example 3
  • The managers of a rock band plan to give a
    concert in an auditorium that seats 800 people.
    They believe that they can sell 600 tickets at
    20 each or 800 tickets at 15 each.
  • Create a demand schedule and a demand curve for
    concert tickets. Then, using the total
    expenditure test, determine the elasticity and
    advise the managers on how much they should
    charge for the concert.

44
Economics 1/8/09http//students.resa.net/milewski
  • OBJECTIVE Working with demand elasticity.
  • I. Administrative Stuff
  • -attendance
  • -follow ups
  • II. Math Practice with Economics
  • III. Working with Demand
  • -change in demand v. change in quantity demanded
  • IV. Demand Quiz

45
Economics 1/9/09 http//students.resa.net/milewsk
i
  • OBJECTIVE Examine the concepts of demand,
    change in demand, change in quantity demanded,
    and elasticity.
  • I. Administrative Stuff
  • -Attendance
  • II. Quiz5 Demand
  • -questions about demand concepts
  • III. Mindjogger
  • -video quiz on Chapter4 Demand
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