BELL WORK

Grab folders, and new papers 3 hole punch Complete pgs.

33, 64-65 Copy chart on pg. 85

UNIT 2: HOW MARKETS WORK

Chapter 4: Demand Chapter 5: Supply Chapter 6: Prices Chapter 7: Market Structure

CHAPTER 4 SECTION 1

“How do we decide what to buy?” Objectives

Explain Law of Demand How substitution/income effects influence

decisions Make demand schedule for individual/market Understand demand graph using demand

schedules Key Terms:

http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch04/Econ_OnlineLectureNotes_ch4_s1.swf

INTRODUCTION

How does the law of demand affect qty. demanded? Price changes always affect qty. demanded b/c

people buy less of a good when prices go up By understanding demand schedules/curves you

can analyze how consumers react to changes in price.

DEMAND

Demand is the desire to own something w/ability to pay for it Law of Demand:

Price is down consumers buy more Price is up, consumers buy less Result of substitution/income effect

Together they explain why increases in price decreased purchasing

SUBSTITUTION EFFECT

When a consumer reacts to rise in price of a good… By…..

Consuming less of that good and more of a substitute good

Can also apply to drops in pricing

INCOME EFFECT

Change in consumption that results when a price increase causes real income to decline Consumption measured in amount of good

bought, not price Can make you feel “richer/poorer” Causes a person spend more/same as before but

qty. is less. Phone Apps: Example

Apps go up to $5 per, you may still buy an app or 2 but now you buy less than when they were $0.99.

Vice-versa is true as well; you will buy more or feel “wealthier” if they are less and your demand is higher

DEMAND SCHEDULES: FIGURE 4.2 PG.89

Explains how the price of an item affects the qty. demanded of that item

To have DEMAND you have to be willing/able to buy it at a certain price.

Schedule is a table that lists the qty a person will purchase at various prices

INDIVIDUAL VS. MARKET SCHEDULES

Qty. demanded at various prices by an idividual

Predicts individual qty. a person is willing to buy at prices

Shows Law of Demand

Qtys. demanded at various prices by all consumers

Predict total sales @ diff. prices

Shows Law of Demand

Individual Market

DEMAND GRAPH

Graphic representation of demand schedule Vertical axis ALWAYS labeled lowest to highest

prices Horizontal axis SHOULD be labeled lowest to

highest possible qty. demanded ALL demand curves/schedules reflect Law of

Demand Limits

Only accurate for one very specific set of conditions

Cannot predict changing market conditions

LESSON CLOSING

Review W/Partner: Think of a good that fits the

schedules/curves we just talked about. Create an individual/market schedule for that

good Describe if it fits substitution or income effect more.

Pg. 90 #11

Workbook Complete pages 34-35, and 15

CHAPTER 4 SECTION 2

Bell Work: 1st 10 Minutes of class

Grab/log on to Netbook

ReviewW/Partner: Think of a good that fits the

schedules/curves we just talked about. Create an individual/market schedule for that

goodDescribe if it fits substitution or income effect

more.

Pg. 90#11

WorkbookComplete pages 34-35, and 15

CHAPTER 4 SECTION2

“Why does the demand curve shift?” Objectives

Difference in change in qty. demanded and shift in demand curve

Know factors that create changes in demand/cause shift in curve

Example(s) of how a change in demand in good for one good can affect demand for a related good

Key terms http://

www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch04/Econ_OnlineLectureNotes_ch4_s2.swf

INTRODUCTION

Why does the demand curve shift? Caused by more than just price

increases/decreases Other factors

Income Consumer expectations Population Demographics Consumer tastes/advertising

CHANGES IN DEMAND

Demand Schedule takes into account only price change Doesn’t consider effects of news reports or many

other factors that change daily Demand curves are accurate only as long as

price is the only change that affects the consumers decision Or only as long as ceteris paribus is true

Drop cp and allow other factors to change, curve is no longer followed and a shift is produced Shift= @ every price, consumers buy a different

quantity than before; shifts entire demand curve Heat wave/Summer Examples

What are people going to want more then?

GRAPHING CHANGES IN DEMANDWHEN FACTORS OTHER THAN PRICE CAUSE DEMAND TO FALL, THE CURVE SHIFTS TO THE LEFT

Which graph would represent the price of a book going up $1?

CHANGE IN DEMAND FACTORS

Several factors can lead to a change in demand, rather than simply change the qty. demanded

Income Most items we purchase are “normal goods”

As income rises we buy more of them Rise= shift to Right, Fall= shift to left

Consumer Expectations Current demand is positively related to its

expected future price If you expect price to rise, current demand will

rise Vice-versa w/ price drop, wait till its lower

CHANGE IN DEMAND FACTORS

Population Size of population will also affect the demand for

most products Can have a particularly strong effect on certain

goods Computers, technology, BABY BOOM?

Demographics Race, age, gender, and occupation of a population

Help businesses classify potential consumers Influence packaging, pricing, and advertising Example: Hispanics now largest minority, more advertising

Advertising/Consumer Tastes Can play important role in trends of purchasing Spend $$ hoping to influence buyers

COMPLEMENTS AND SUBSTITUTES

Demand curve for one good can also shift b/c response to change in demand of another good

Two types of related goods that interact this way Complements: Goods that are bought/used

together Substitutes: Goods used in place of one another

LESSON CLOSING

Fill out 2 Charts from Section 1 & 2 Finish 34-36 Start on activities on pg. 15, 23 in workbooks Use net-books to log on to pearson success

net and look at resources for Chapter 4 1 and 2 Action Graphs, Economics and you, visual

glossary

CHAPTER 4 SECTION 3

Complete Two Bubble charts from Section 1 and 2

Copy down Concept Chart for S.3

CHAPTER 4 SECTION 3

“What factors affect elasticity of Demand?” Objectives

How to calculate elasticity of demand Factors that effect elasticity How firms use elasticity and revenue to make

decisions Key Terms

http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch04/Econ_OnlineLectureNotes_ch4_s3.swf

INTRODUCTION

What factors affect elasticity of demand? Economists have figures a way to calculate how

consumers will react to changes in price Original price and how much you want a

particular good are both factors that determine your demand for a product

CONSUMER RESPONSE

Elasticity of demand is the way that consumers respond to price changes It measures how drastically buys will cut back or

increase their demand for a good rises/falls Your demand for a good that you will keep buying

despite a price change is inelastic If you buy much less of a good after a small price

increase, your demand for the good is elastic

ELASTIC DEMAND

Elastic Demand comes from one or more of these factors Availability of substitute goods Limited budget that doesn’t allow for price

changes Perception of good as a luxury item

Calculating Elasticity of Demand % change in qty demanded of good divided by %

change in price of good Law of demand implies that result will always be

negative Look at figure 4.5; answer 2 ?s

MEASURING ELASTICITY

If elasticity is less than 1 it is INELASTIC

If elasticity is greater than 1 it is ELASTIC

If it is equal it is unitary elastic

FACTORS AFFECTING ELASTICITY

Availability of substitutes Few substitutes

Price increase may not result in less demand Can make good inelastic GAS!!

Wide variety of substitutes Price increase can result in less demand as substitutes

are used. Good is Elastic Brand-names, food goods, designer clothing, etc.

OTHER FACTORS FOR ELASTICITY

Relative importance How much of your budget you are willing to

spend on a good Necessities v. Luxuries

Whether or not good is considered a necessity or luxury affects elasticity of demand for good Some people deem their phone a necessity now,

others a luxury

Change over time Can’t always react quickly to price increase Often caused by time to find substitutes

Demand is then INELASTIC short-term but eventually ELASTIC Ex.: Gas guzzling SUVs are now being replaced.

HOW FIRMS USE ELASTICITY/REVENUE

Elasticity=important to economics b/c helps measure how consumers respond to changes for different product Elasticity of demand determines how a change in

price will affect income/revenue of a firm (figure 4.6)

Law of demand states that an increase in price will decrease qty demanded Elastic demand; you can raise the price by __%

and demand could decrease by larger %= reduced revenue

Vice-versa: Can decrease price by __% and demand could increase by larger %= increased revenue

Look/Answer 4.6 on 103

ELASTICITY AND REVENUE CONT’D

Demand =Inelastic Consumers don’t respond much to price change EX: if price increases, qty demand will but less

than price increase Results in higher revenues (GAS)

Elasticity of Demand determines effect of a price change on total revenue Why will revenue fall if firm raises price of elastic

good? Demand decreases by a larger % than price increases,

decrease in revenue What happens to revenue when price decrease,

but demand is inelastic? Decreases

LESSON CLOSING

Test Monday Study Guide/Work Day tomorrowClosing options Work on projects w/partner Workbook work due on Monday w/ test

33-40, 15, 23, 28