Economics 4/4/11 http://mrmilewski.com • OBJECTIVE: Demonstration of Chapter#3 and begin examination of demand. • I. Administrative Stuff -attendance -distribution of test • II. Chapter#3 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 Calculator • BRING YOUR CALCULATOR THIS WEEK!!!! 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. 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. Demand Curve • demand curve - a graph showing the quantity demanded at each and every price that might prevail in the market. 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 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 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. Example #1: • How much satisfaction would you get from this? Example #1: • How much satisfaction would you get from this? Example #1: • How much satisfaction would you get from this? Example #2 Example #2 Example #2 Demand Changes • Change in quantity demanded – movement along the demand curve • Change in demand – shift in the demand curve Change in Demand v. Change in Quantity Demanded Economics 4/5/11 http://mrmilewski.com • 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. Quiz#7 • III. Return of Chapter#3 Test • IV. Journal #13 pt.B -notes on demand changes • Progress Report Due Friday! Demand Changes • Change in quantity demanded – movement along the demand curve • Change in demand – shift in the demand curve 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. 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 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. Example of the substitution effect • If Wendy’s raised the price of their $.99 extra value menu to $1.99 you may choose to substitute Wendy’s food with McDonalds $1.00 menu. 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 didn’t change but more was demanded. 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 • 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. Change in Demand v. Change in Quantity Demanded Complements • What are the complements for Tony the Tiger? • If Larry’s Foodland put milk on sale, what might this do to Tony the Tiger? http://americanheritage.us/Images/CAT_966941.jpg How Milk Prices affect Tony Milk Cereal • The decrease in the price of milk will increase the demand for cereal. Substitutes • What are the substitutes for this Fabio endorsed product? • What would happen if Larry’s Foodland increased the price of butter? http://images.amazon.com/images/P/B00032CDPA.01-A3CDPEGSIQM61V._SCLZZZZZZZ_.jpg How higher butter prices help Fabio Butter Margarine • An increase in the price of butter will increase demand for the substitute good, “I Can’t Believe It’s Not Butter” Economics 4/6/11 http://mrmilewski.com • OBJECTIVE: Examine the concepts related to Fundamental Economic Concepts. • I. Chapter#4 Guided Readings Complete the following activities due today! -Chapter#4 section#1 Guided Reading -Chapter#4 section#2 Guided Reading -Chapter#4 section#3 Guided Reading -Chapter#4 Vocabulary • II. Chapter#4 Review -Work on Chapter#4 Homework &/or Review for Chapter#4 Test • REMINDER: Bring your Calculator Tomorrow! • REMINDER: Progress Report Due Friday! Economics 4/7/11 http://mrmilewski.com • OBJECTIVE: Examine demand elasticity. • I. Journal #14 pt.A -Read “The Global Economy” p.102 -Answer questions (1-2) p.102 • II. Journal #14 pt.B -notes on elasticity • III. Math Practice -complete worksheet on demand • NOTICE: Progress Report Due Tomorrow! 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 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) Inelastic Demand • A big change in price causes a small change in quantity demanded. • Slope is greater than -1 • Examples: -table salt -gasoline Unit Elastic Demand • Any change in price causes a proportional change in quantity demanded. • Slope equals -1 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. Determining Elasticity Type Change in Price Change in Expenditure Elastic decrease increase opposite Less than -1 Unit Elastic decrease No change proportional Equal to -1 same Greater than -1 Inelastic decrease decrease Movement of Slope P&E 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. 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 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. 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% Chinese Buffet • % change in Q =-37% • % change in P =20% • The elasticity for the -37% = Chinese Buffet is 20% elastic • Elasticity = -1.85 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 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. Economics 4/8/11 http://mrmilewski.com • OBJECTIVE: Working with demand elasticity. • I. Administrative Stuff -attendance & follow ups • II. Math Practice with Economics • III. Demand Quiz • IV. Mindjogger -video quiz on Chapter#4 Demand