warm up: create an index card for the circular flow of the

Warm up: Create an index card for the circular flow of the economy.Learning target: I can explain the law of demand and the law of supply; I can explain the difference between demand and quantity demanded; I can graph a demand curve and a supply curve.

Modern Monday, Sept. 23 Birthday Tuesday, Sept. 24

2

2012 Exam

Copyright ACDC Leadership 2018

Circular Flow Model Review1. Do individuals supply or demand?

2. Do business supply or demand?

3. Who demands in the product market?

4. Who supplies in the product market?

3

Both, they demand products and supply resources

Both, they supply products and demand resources

Individuals and the government

BusinessesCopyright ACDC Leadership 2018

Tuesday Tutoring--Let’s go over the Unit 1a test together!

2014 Top Ten Fortune 500 Companies’ CEOs’ Undergraduate Alma Maters

1. Wal-Mart -- University of Arkansas (MBA from U. of Tulsa)2. Exxon Mobil -- University of Texas3. Chevron -- University of California, Davis4. Berkshire Hathaway -- University of Nebraska5. Apple -- Auburn University6. Phillips 66 -- Texas A&M7. General Motors -- the General Motors Institute (now called Kettering Univ)8. Ford Motor -- University of Kansas9. General Electric -- Dartmouth College

10. Valero Energy -- U. of Missouri-St. Louis (MBA Our Lady of the Lake U.)Source: Bruni, Frank. Where You Go Is Not Who You’ll Be: An Antidote to the College Admissions Mania. New York, Hachette Book Group, 2016.

Current Events: What in the world

is going on?6Copyright

ACDC Leadership 2018

Demand

7Copyright ACDC Leadership 2018

DEMAND DEFINEDWhat is Demand?

Demand is the different quantities of goods or services that consumers are willing and able to buy at different prices.

What is the Law of Demand? There is an INVERSE relationship between price and

quantity demanded. When price goes down, quantity demanded increases.


Raise your hand if …● You have DEMAND for the following goods:

Example of DemandI am willing to sell several A’s in AP Economics. How much will you pay?

Price Quantity Demanded

Demand Schedule


Why does the Law of Demand occur?The law of demand is the result of three

separate behavior patterns that overlap: 1. The Substitution effect 2. The Income effect3. The Law of Diminishing Marginal

Utility We will define and explain each…


• If the price goes up for a product, consumers buy less of that product and more of another substitute product (and vice versa).

1. The Substitution Effect

• If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.

2. The Income Effect

Why does the Law of Demand occur?


• Utility = Satisfaction• We buy goods because we get utility from them• The law of diminishing marginal utility states that as you

consume more of something, the additional satisfaction that you receive will eventually start to decrease.

• In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit consumed.

Discussion Questions:1. What does this have to do with the Law of Demand?2. How does this affect the pricing of businesses?

3. Law of Diminishing Marginal UtilityWhy does the Law of Demand occur?

14

ChangeN/A$54$33

$15

$10

$5

Graphing Demand


The Demand Curve• A demand curve is a graphical representation of a demand

schedule.• The demand curve is downward sloping showing the

inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis).

• When reading a demand curve, assume all outside factors, such as income, are held constant. (This is called ceteris paribus)

Let’s draw a demand curve for milk…


GRAPHING DEMAND

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Demand Schedule

10 20 30 40 50 60 70 80

Draw this large in your notes

18

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80


GRAPHING DEMAND

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Demand Schedule

10 20 30 40 50 60 70 8019

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80Demand


Where do you get the Market Demand?

Q

Billy Price Q Demd

$5 1$4 2$3 3$2 5$1 7

Jean Other Individuals Price Q Demd

$5 0$4 1$3 2$2 3$1 5

Price Q Demd

$5 9$4 17$3 25$2 42$1 68

Price Q Demd

$5 10$4 20$3 30$2 50$1 80

Market

3

P

Q2

P

Q25

P

Q30

P

$3 $3 $3 $3D DDD


Supply DefinedWhat is supply?Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.

What is the Law of Supply?There is a DIRECT (or positive) relationship between price and quantity supplied.

•As price increases, the quantity producers make increases.•As price falls, the quantity producers make falls.

Why? Because, at higher prices profit seeking firms have an incentive to produce more.


The Law of Supply

GRAPHING SUPPLY

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 8023

PriceQuantitySupplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


Work Period:Demand or Supply

Class Surveys24Copyright

ACDC Leadership 2018

Work Period1. Your job is to decide on a product you could

legally sell to your classmates. 2. Come up with a pricing plan—a range of five

prices that you would be willing to sell the item for and that you think your classmates might be willing to pay.

3. Create a chart to help you keep track of your classmates’ answers.

Work Period, continued4. Conduct a survey of classmates to see how many of your

item they would buy at each price.

5. After you have surveyed seven people, create a demand schedule (table) and a demand graph in your notes.

Demand Survey Example● I am selling one 2”x2” homemade triple-chunk brownie.

● My price range for one brownie is:● $2.00

● $1.50

● $1.00

● $0.75

● $0.50

Producer/Supplier Survey1. Survey five students in class about how many hours they

would be able and willing to work at a particular job at a range of hourly wages.

2. Hourly wage range is $5, 10, 15, 20, 303. Jobs you may choose from are: babysitting 3-month-old

twins, digging ditches, roofing in July, cleaning out horse stables, math tutoring, teaching economics, picking onions in the summer, scraping gum off the bottom of desks at DHHS, taste-testing new Brussel-sprout recipes.

Warm up: Create two index cards: one for supply and one for demand (include definition, law and graph).Learning target: I can explain the law of demand and the law of supply; I can explain the difference between demand and quantity demanded; I can graph a demand curve and a supply curve.

Western Wednesday, Sept. 25 Thrilled Thursday, Sept. 26

“My wife really wanted to go to the University of Virginia and didn’t get in. I really wanted to go to Georgetown and didn’t get in. So we both ended up at [the University of] Delaware. It was a place

where all of us felt that if we worked hard, we could do well. I never felt like the school wasn’t going to

give me the tools to be successful.” -Chris Christie, Governor of New Jersey and 2016

presidential candidate

Source: Bruni, Frank. Where You Go Is Not Who You’ll Be: An Antidote to the College Admissions Mania. New York, Hachette Book Group, 2016.

We can create a table and graph that will show the range of quantities that people will buy or supply at different prices.

QUANTITY DEMANDED● QUANTITY DEMANDED IS HOW MUCH IS BOUGHT AT A

PARTICULAR PRICE and it is shown by a single point on a demand curve.

● Example: ● If I buy 1 pair of flip-flops when the price is $20, then my

quantity demanded is 1 at $20 (Qd = 1) ● If I buy 4 pairs of flip-flops when the price is $2, then my

quantity demanded is 4 at $2 (Qd = 4)

•••

34

0D

Price of Ice-Cream Cones

Quantity of Ice-Cream Cones

A

B

8

1.00

$2.00

4

Changes in Quantity Demanded

We show a change in quantity demanded by moving to a new point along the original curve!!

What happens when we change the price of our good or service?

What happens when we change the price of our good or service?The QUANTITY

DEMANDED changes!!

Let’s Review Graphing Practice

Homework . . .

Shifts in Demand• When we change something other than the price of our

product, movement no longer occurs along the demand curve. Rather, the entire demand curve shifts.

• A shift means that at the same prices, more (or fewer) people are willing and able to purchase that good.This is a change in demand, not a change in quantity

demanded!PRICE DOESN’T SHIFT THE CURVE


Change in Demand

Q

$5

4

3

2

1

Price Demand Schedule

10 20 30 40 50 60 70 8042

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

D


What if milk makes you smarter?

PriceQuantity

Demanded

$5 10 30

$4 20 40

$3 30 50

$2 50 70

$1 80 100

Change in Demand

Q

$5

4

3

2

1


10 20 30 40 50 60 70 8043

DD1

Increase in DemandPrices didn’t change but people want MORE Milk


Change in Demand

Q

$5

4

3

2

1

PriceDemand Schedule

10 20 30 40 50 60 70 8044

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

D


What if milk causes baldness?

Change in Demand

Q

$5

4

3

2

1


10 20 30 40 50 60 70 8045

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

D


What if milk causes baldness?

PriceQuantity

Demanded

$5 10 0

$4 20 5

$3 30 20

$2 50 30

$1 80 60

Change in Demand

Q

$5

4

3

2

1


10 20 30 40 50 60 70 8046

DD2

Decrease in DemandPrices didn’t change but people want LESS Milk


P

Q Milk

$3

$2

D1

Price of Milk

Quantity of Milk10 20

Change in Qd vs. Change in Demand

A C

B

There are two ways to increase quantity from 10 to 20

D2

1. A to B is a change in quantity demanded (due to a change in price)

2. A to C is a change in demand (shift in the curve)


Change in Demand

Q

$5

4

3

2

1


10 20 30 40 50 60 70 8048

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

D


What happens to the demand for milk if

the price of milk goes up?

NOTHING!The demand

stays the same

•••

49

●1.2.3.4.5.6.

••

Income

2. Inferior Goods – Ex: Top Ramen, used cars, used clothes – As income increases, demand falls– As income falls, demand increases

1. Normal Goods – Ex: Luxury cars, seafood, jewelry, homes– As income increases, demand increases– As income falls, demand falls

The incomes of consumer change the demand, but how depends on the type of good.


Inferior Goods


••

• Substitutes are goods used in place of one another. – Ex: If price of Pepsi falls, demand for Coke

will decrease. Ex. Glasses & contact lenses.– If the price of one , the demand for the other

will (or vice versa).– If the availability of one , the demand for the

other will (or vice versa).

Substitutes


64

Substitutes or Complements?


What happens in the market for ice cream when the price of frozen yogurt decreases?

65



What happens in the market for electric cars when the price of gas-powered cars increases?

66



What happens in the market for CFA sandwiches when the availability of Popeyes sandwiches decreases?

•

•

Complements are two goods that are bought and used together. – Ex: If price of hot dogs falls, demand for hot dog

buns will increase. Ex. PS4 and PS4 games.– If the price of one , the demand for the other

will (or vice versa).– If the availability of one , the demand for the

other will (or vice versa).

69



70



What happens in the market for SUVs when the price of gas increases?

71



What happens in the market for maple syrup when the price of waffles decreases?

72



What happens in the market for cell phone chargers when the price of cell phones decreases?

Complements?


•…

–––

Consumer Tastes and Preferences

http://www.youtube.com/watch?v=UFrokA1Jwdk

https://www.youtube.com/watch?v=pUG3Z8Hxa5I&list=PL4D1C89ED04DEF631&index=10

1. Which of the following will cause the demand for milk to decrease?

A. Increase in the price of a substitute B. A decrease in income assuming that milk is a

normal goodC. A decrease in the price of milkD. An increase in the price of milkE. A decrease in the price of a complementary good

77

Practice Questions


2. Which of the following will cause the quantity demanded of milk to decrease?

A. Increase in the price of a substitute B. A decrease in income assuming that milk is a

normal goodC. A decrease in the price of milkD. An increase in the price of milkE. A decrease in the price of a complementary good

78

Practice Questions


In the News: Law of Demand

80

What caused “insane” lines in malls?Was this good or bad for Build-A-Bear?

warm up: create an index card for the circular flow of the

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