I will be playing a clip from a movie. After it is finished, I want you to write down what happened and how it relates to economics. What is a modern example of this concept?

• Two factors that make market-based economies work:
– Consumer is on the DEMAND side of the market
– Producer is on the SUPPLY side of the market

Supply
Demand
Quantity

Douglass’ Demand Schedule
Chipotle Burritos
Price (per burrito) Quantity (burritos per week)
$1.00
11
$3.00
$5.00
9
7
$7.00
$9.00
$11.00
5
3
1
 Quantity I am willing and able to buy at the given price
Create the Demand Curve for my burrito consumption.
Assume that PRICE is my only consideration when deciding how many burritos to consume. I am the only customer in this market example.

Douglass’ Burrito Demand Curve

• The amount of a good/service that consumers are willing and able to buy at all price points in a given period of time.
– WILLING – You’re not going to buy something for kicks, you have to actually want/need it!
– ABLE – You can’t buy something if you don’t have enough cash.
– TIME FRAME – always expressed in terms of time

• Inverse Relationship
– As price goes UP, demand goes DOWN
– As price goes DOWN, demand goes UP
P
Q
D

Reasons for the Inverse Relationship
• The Law of Diminishing Marginal
Utility

EXAMPLE:
Even if the burrito is
AMAZING, at a certain point the price to buy another isn’t worth it.

Reasons for the Inverse Relationship
• The Law of Diminishing Marginal Utility
• The Income Effect
– Scarcity forces tradeoffs

EXAMPLE:
The more expensive the burrito, the less I am able to buy at that price.

Reasons for the Inverse Relationship
• The Law of Diminishing Marginal Utility
• The Income Effect
– Scarcity forces tradeoffs
• Substitution Effect
– Sometimes two different goods can satisfy the same wants

EXAMPLE:
If Qdoba’s burrito was only $5 when
Chipotle’s is
$7, I might go over there to save a few bucks.

Change in
Quantity
Demanded vs.
Change in
Demand Curve
Caused by change in PRICE of product
Caused by a nonprice determinant, called a DEMAND
SHIFTER
Illustrated by a
“movement along the curve”
Illustrated by a shift (left or right) of the entire curve

• Change in income of consumer
• Changes in the number of consumers
• Changes in tastes & preferences
• Changes in expectations
• Changes in price of SUBSTITUTE GOODS
• Changes in price of COMPLEMENTARY GOODS

Price Total Quantity
Demanded
$1
$0.50
$0.25
$0.10
1 2 3

Please pull out your check in question sheets.
We will be watching another video clip.

• Axes
• Law of Demand
• Reasons for inverse relationship?
• Change in Quantity Demanded vs. Change in
Demand
• Demand Shifters
• Substitution goods vs. Complimentary goods

Analyzing Demand Headlines
• Complete the worksheet with a partner:
1. Record the headline in the correct row
2. Draw what will likely happen to the demand curve based on the headline
3. Explain your graph
• LEFT (decreases)
• RIGHT (increases)
4. Cite the demand shifter
 Check

Do you think creating an appearance of scarcity, like
Apple did during its iPhone launches, increases demand or makes the seller look like it doesn’t know how to supply a product?

Neighborhood Girls’ Lemonade Stand
(supply schedule)
Price (per cup) Quantity (cups per day)
5¢ 10
10¢
15¢
20
30
20¢
25¢
30¢
35¢
40¢
45¢
50¢
40
50
60
70
80
90
100
 Quantity they are willing and able to OFFER at these given prices
Create the SUPPLY Curve for their ice cold lemonade.
They are the only producers in this market example.

Neighborhood Girls’ Lemonade
Supply Curve

• The amount of a good/service that producers are willing and able to offer for sale at all prices in a given period of time.

• As price goes UP, quantity supplied goes
UP
• As price goes DOWN, quantity supplied goes DOWN
S
P
Q

• Producer’s have only one goal… P
– MAXIMIZE PROFITS
Q
– Revenue vs. Profits
• Revenue = total amount of $ made before paying for the factors of production
• Profit = what’s left after paying for the factors of production
S

Market Entries and Exits
• New firms will enter into a market because they think they will profit
• Firms will exit the market when they no longer make a profit (decreases the Q supplied at certain prices)
S
P
Q

Change in
Quantity
Supplied
Caused by change in PRICE of product
Illustrated by a
“movement along the curve”
Change in Supply
Curve
Caused by a nonprice determinant, called a SUPPLY
SHIFTER
Illustrated by a shift (left or right) of the entire curve

• Change in the cost of inputs
• Changes in the number of producers
• Changes in conditions due to natural disasters or international events
• Changes in technology
• Changes in producer expectations
• Changes in government policy

Analyzing Supply Headlines
• Complete the worksheet with a partner:
1. Record the headline in the correct row
2. Draw what will likely happen to the supply curve based on the headline
3. Explain your graph
• LEFT (decreases)
• RIGHT (increases)
4. Cite the supply shifter
 Check

• 1 question “What happens to the demand curve?” & demand shifters
• 1 question “What happens to the supply curve?” & supply shifters
• 1 graphing question using BOTH supply and demand
• What is the product?
• Set 6 price levels
• Set demand and supply quantities at each price level
(create demand/supply schedule)…remember the laws of supply and demand!!!!!!
• ALL answers on back…yes, you have to graph your own problem!

C h e c k I n Q u e s t i o n
If Facebook, Twitter, Instagram, etc. started requiring accounts to pay for usage, would you pay for them? How much?

• Axes
• Law of Supply
• Producer’s goal…
• Revenue vs. Profits
• Market Entries & Exits
• Change in Quantity Supplied vs. Change in
Supply
• Supply Shifters

P
• Degree to which Q
D or Q
S changes in response to a change in price
S
P
D
Q Q

Demand
• How sensitive is the consumer to a change in price???
– Inelastic = Q
D
– Elastic = Q
D insensitive to change in price sensitive to a change in price

P
Demand
• Q
D generally unaffected by a change in price
Notice that even though price changed significantly, Q
D did not see a big change.
Vertical line = perfectly inelastic
D
Q

Examples of Inelastic Goods/Services
• Give me some….
Milk
Medicine
Gas
Electricity
Baby formula
Toothpicks
Eggs
Cell phone service
Commodities
(very useful items, we need them)
Internet
Salt
Tobacco
Anything without a good substitute!!!

P
• Q
D affected by changes in price
D
Notice that even small price changes will have a significant impact on Q
D
.
Horizontal line = perfectly elastic
Q

Examples of Elastic Goods/Services
• Give me some…
Movie tickets
Maid service
Vacations
Makeup
Luxury items Designer Products
Soda
CDs
Anything with a lot of good substitutes.

• How producers can calculate elasticity of demand
sold x
good

Price
(per)
$22.00
$24.00
$26.00
$28.00
$30.00
Revenue Table : Product X
Quantity
(sold per week)
20,000
TOTAL REVENUE
(per week)
19,000
18,000
17,000
16,000
Calculate the total revenue for Product X & Y.
Which is elastic? Inelastic?
Price
(per)
$1.00
$1.25
$1.50
$1.75
$2.00
Revenue Table : Product Y
Quantity
(sold per week)
TOTAL REVENUE
(per week)
20,000
16,000
12,000
8,000
6,000

Product X = Pampers Diapers
Inelastic
• Why are diapers generally inelastic?
Revenue Table : Pampers Diapers
Price
(per box – 30 pack)
$22.00
Quantity
(boxes sold per week)
20,000
TOTAL REVENUE
(per week)
$440,000
$24.00
$26.00
$28.00
$30.00
19,000
18,000
17,000
16,000
$456,000
$468,000
$476,000
$480,000
• Because as price of each box increases, it only sells 1,000 less units per week and still manages it make more revenue.

• Why are Kit-Kat Bars elastic?
Price
(per bar)
$1.00
$1.25
$1.50
$1.75
$2.00
Revenue Table : Kit-Kat Bars
Quantity
(bars sold per week)
TOTAL REVENUE
(per week)
20,000
16,000
12,000
8,000
6,000
$20,000
$20,000
$18,000
$14,000
$12,000
• Because as price per bar increases, 4,000 fewer are sold and total revenue decreases.

• Tells us how much a producer will change the quantity it supplies when there is a change in price
– Inelastic = Q
S
– Elastic = Q
S insensitive to change in price sensitive to a change in price

P
Inelastic
Q
S insensitive to change in price
Elastic
Q
S flexible to a change in price
S
S
P
Q
Q

Inelastic
• Goods that are difficult to produce
– Availability of inputs low and/or hard to get from place to place
Elastic
• Easily produced goods

Q
D
P
Q
S
D

Q
D
P
Q
S
D

Markets are governed by the Laws of
DEMAND & SUPPLY
P
S
Q
S
= Q
D
Equilibrium
D
Q