We will be using Cornell Note Taking
Format Today!
Smile and “Own the Day!
Take one step at a time to
Success in Economics class!
Unit Two: Learning Objectives:
North Clackamas School District
Social Studies Priority Standards:
• HS.51 (A): Explain how supply and
demand represents economic activity
and describe the factors that cause them
to shift.
Lesson Three: Daily Learning Target
I Can define and explain in writing the
following key Economic concepts:
 Diminishing Marginal
Utility
 Elasticity
 Elastic Demand
 Inelastic Demand
 Factors Affecting Elasticity
of Demand
10¢
“Not much business
so I’m going to lower
my price to 5 cents.
D
5¢
QD2
“Change in QD” [price change, point to point movement]
D
P1
P2
QD1
“Change in Demand” (curve)
D3
QD3
D1
D2
QD1 QD2
QD2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
RAZR
M. Jackson glove
Power Rangers
Parachute pants
Old Jellies
Dalmatian puppies
Furbys
Pogs
Typewriters
RAZR cell phones
CDs
40 million
were sold
M. Jackson’s popularity
1. New iPad
2. Microsoft Surface
3. Wii
4. LCD monitors
5. Photo messages
6. Nintendo DS
7. PS4
9. XBOX 360
10. Flat Screen TVs
11. PSPs
12. Seven jeans
13. Spiked hair
15. iPhone 6
16. Samsung 5S
17. Bratz Dolls
18. Kindle Fire HDX
iPad
Hoodies
PlayStation 3
XBOX 360
Wii
Bratz Dolls
D
P1
P2
QD1 QD1
With each additional pair,
he will get less utility and
therefore pay less.
I would love a
pair of shoes!
Wow!
Not so
much!
Wal-Mart sells 20,000 pairs of shoes each hour.
Women buy 19,000 of the 20,000 pairs of shoes.
American women spend $15 billion each year on shoes.
American women spend $5 billion on foot problems.
I’m stuffed.
I don’t want any more!
[Disutility has set in!]
Disutility [or negative utility]?
I ate one hamburger, and it tasted
great. The next two tasted okay. I
wish I hadn’t have eaten the 5th. I
can’t finish the 6th.
.
About this time
there is toilet trauma.
I’ll pay you $1 to
drink another glass.
Law of DMU
As an individual consumes more of a good, eventually MU will decrease.
“It’s been fun, but I think I’m entering the diminished
marginal utility [satisfaction] phase of our relationship.”
Of course, you might get this!
Why does attraction towards one’s wife
reduce as years of married life increase?
“Diminishing Marginal Utility!!!
There are exceptions to “Diminishing
Marginal Utility”. For instance, if you are….
.
The “World Champion Hot Dog Eater”: 69 Hot Dogs in 10 minutes
Sonya Thomas – 40 dogs
[won pink Pepto Bismol belt]
Symbolic of gastronomic greatness
Joey ate 103
Crystal
Hamburgers
and won
$10,000.
Joey ate the equivalent of 1 dog every 8.6 seconds.
For his victory, he received the coveted
“mustard-yellow champion’s belt” and a
one year’s supply of hotdogs from Nathan’s.
The man he defeated earned $150,000
in one year for similar contests, including
$25,000 for a winning appearance at the
“Glutton Bowl”, in which he consumed
18 pounds of cow’s brains.
Sonya Thomas [“The Black Widow”] at
98 pounds sets the Female Record at 40
Gas prices keep rising but we keep
buying!
Doesn’t the law of demand state that
consumers buy less at higher prices?
So, why are we still buying gas?
Elasticity of Demand
• Elasticity of demand is a measure of how consumers
react to a change in price.
• Inelastic demand is demand that is not very sensitive
to a change in price.
• Elastic demand is demand that is very sensitive to a
change in price.
Think pants. These pants have
inelastic waistbands. The waistbands
do not change if people gain weight.
Our demand for gasoline is inelastic.
It does not change even with a price
increase.
Think pants again! Sweat pants have
elastic waistbands. The pants change
depending on the size of the person.
Our demand for apple juice
is elastic. If the price increases,
we will buy less. Our demand
changes.
So, why is our demand for apple juice
elastic and our demand for gasoline
inelastic?
Factors Affecting
Elasticity of Demand
• The following are factors that can affect the
elasticity of demand:
Availability of Substitutes
Relative Importance
Necessities Versus Luxuries
Time (It takes time to find substitutes.)
It’s obvious, isn’t it?
We can substitute orange juice
for apple juice.
Therefore, we deal with a price increase
by substituting one product for another
product.
However, we cannot
substitute milk
for gasoline.
What is this graph telling us about
elasticity of demand?
Specific vs. General
Market
When we talk about
Elasticity of Demand it is
important to note if we are
talking about the market in
general or are we talking
about a specific firm.
Total Receipts Test
The total receipts test is
the way we figure out
whether demand is
elastic, unit elastic, or
inelastic.
$2
$1
Elastic
Inelastic
20
30
30 x $1 = $30.00
40
50
50 x $1 = $50
.
Most houses are heated by natural gas or electricity.
Heating oil is mostly used in NE U.S.
to fuel furnaces and boilers.
Estimating the Elasticity of Demand
3 Key Questions:
1. Subs? 2. Necessity? 3. Expensive?
Elastic
Elastic or Inelastic Demand
Inelastic
How to Determine Total Receipts
(Total Revenue)
• Price X Quantity
• Elastic Demand has larger total
receipts at lower prices
• Inelastic Demand has larger total
receipts at higher prices
• Unit Elastic Demand has the same
total receipts regardless of price
Total Receipts Illustrated
• Elasticity for stuffed Kermit the Frog at Disney World
Price per Frog
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
# of Frogs Demanded
12
15
20
25
30
40
50
60
Total Receipts
$96.00
$105.00
$120.00
$125.00
$120.00
$120.00
$100.00
$60.00
Price
Demand for Frogs
9
8
7
6
5
4
3
2
1
0
12
15
20
25
30
40
Quantity Demanded
50
60
Elasticity and Pricing Policies
Understanding Elasticity helps business
determine pricing strategies.
If demand is elastic you lower prices to raise
revenue.
If demand is inelastic you raise prices to raise
revenue .
GRAPHING SKILLS PRACTICE:
 Complete the “DEMAND SITUATIONS” worksheet”
BY YOURSELF. Turn directly into me. I want to
personally check your level of understanding on
these concepts.
 WHEN YOU ARE FINISHED….Skim through Unit two:
Lesson One in the economics book (pages 97-104)
 Answer questions 1-7 (PAGE 104) on a piece of
notebook paper and turn directly into me today.
 THIS CAN BE DONE IN PARTNERS!