This document discusses demand, factors that influence demand, and elasticity of demand. It provides examples of demand schedules and uses graphs to illustrate the law of demand and how quantity demanded responds to changes in price. Key determinants of demand discussed are tastes, prices of related goods, income, number of consumers, and expectations of future prices. Examples are given to show how demand can be elastic or inelastic depending on availability of substitutes, importance of the good to consumers, and other factors.
4. 2. Which allocation method does your family
use to distribute resources?
3. Which method do sellers ebay use?
4. Which method is used on Wall Street?
Brute force
First come, first serve
Rationing (usually equal)
Rationing by committee
Based on need (poorest)
Contest based
Random lottery
Auction – willing to pay
5. Economists like Auction too
We use price because it lowers opportunity
cost
Brute force
First come, first serve
Rationing (usually equal)
Rationing by committee
Based on need (poorest)
Contest based
Random lottery
Auction – willing to pay
6. Where do prices come from?
• XBOX1 OR PS4
• Demand
• The combination of how much people will buy at a
certain prices, at a certain time period (week,
month, year etc)
• Why important for entrepreneurs or managers?
16. Why do firms care?
• Demand predicts revenue
• Revenue = Price X Quantity sold
Cookies
Price QD*Day Revenue
$0.20 7
$0.40 4
$0.60 2
$0.80 1
$1.00 1
$1.20 0
17. On your BR
4. What price should this company choose if they
want to maximize revenue?
18. You try one
Widget Demand Schedule
Price
Quantity
Demanded
5 10
4 17
3 26
2 38
1 53 Demand curve reason ?
D
19. Law of Demand
Law of Demand: As price declines, quantity demanded
increases. As price increases, quantity demanded
decreases
Law of Demand: P Therefore Q demand
P Therefore Q demand
Demand curve always
slopes down
20. A linguistic problem
• Does P$ change
the actual demand
of a good?
• NO, P$ change
only changes
quantity
demanded
• “thinking on the margin”
• Chicken example D
21. Law of Demand at work
• Goods/Services that price changes cause changes in
quantity demanded
• Half price, “buy one, get one free”
24. Consumer Surplus
Consumer surplus is the difference between the
amounts people would willingly pay for various
amounts of specific goods and the amounts they do
pay at market prices.
27. Demand Curve Experiment
Same paper
1. Conduct a demand curve experiment
2. Choose 1 good (snickers bars, monster drinks, movie
tickets, takis bags, AZ ice tea, “5” packs of gum or
Hershey bars)
3. Make up 5 price points and a time period
4. Survey 5 people and find out their demand per week
(write their names)
5. Graph the total demand on a correctly labeled graph
6. Write an explanation of how the experiment shows the
law of demand in action AND how a company might use
this information
28. Bellringer sheet
1. 3 items you will buy more of when you start making $25,000/year
or more
2. 2 items you will buy less of when you start making $25,000/year or
more
3. OPTIC for this graph:
4. Get out your notes
29. Changes to demand
Does Demand change
when the price of a
good changes?
Only the Quantity
demanded changes
with price
Review:
What is the Q*D at
Price = $1.50?
When Q*D is at 50,
what is the price?
Revenue max?
35. Demand Vocab
• Normal goods – goods you buy more of when your income
increases
• Inferior goods – goods you buy less of when your income
increases
• Income Effect – changes to a person’s income changes their
demand
• “complements” – a good that is purchased with another
• “substitutes” – a good which can be substituted for another
• Substitution effect - Changes to prices of similar goods
changes people’s demand
49. At your tables
6. When would be a good time to sell normal goods?
(when the economy is….?)
7. When would be a good time to sell inferior goods?
(when the economy is…..?)
8. List two complements for tomatoes
9. List two substitutes for tomatoes
57. A trick to remember determinants
of demand
T R I B E
T = tastes of consumers
R = Related goods (P$ change)
I = Income of buyers
B = # of buyers
E = expectations of future price
http://quizlet.com/2043838/individual-markets-flash-cards/
58. White boards
Which part of TRIBE will
change in the following
scenarios to the Tucson movie
theater market?
1. Average wage in Tucson increases
2. Price of DVDs & flat screen TVs decrease
3. Population of Tucson doubles
4. New Spiderman movie comes out
5. KOLD reports movie tickets will increase 15% in
2015
6. Xbox1 & PS4 hit the stores
59. On the back of your paper
• Identify the changes to the demand for tomatoes
Identify the part of TRIBE and increase or decrease or no change
1. New residents move to Arizona
2. Unemployment rises
3. The price of spaghetti noodles increases
4. Americans try to eat healthier and eat more salads
5. Americans try to eat healthier and eat less pizza
6. Price of tomatoes decreases
7. Average US income rises
8. V8 juice company goes out of business
9. The price of ground beef decreases
10. Media reports salmonella outbreak from California tomatoes
11. Consumers predict tomato prices to increase next month
12. Salsa becomes #1 US condiment
13. Price of tortilla chips triples
14. Make up your own example and explain demand change
60. Full page Bellringer
1. Would you buy each of these goods if the price
quadrupled AND WHY?
Toothpaste ($2)
New XBOX & PS3 Video Games ($49)
Notebook paper ($0.10)
Sonoran Hot dog ($2.50)
Art Supplies ($8)
New Washing Machine ($400)
2. Get out your notes
65. Graph this demand curve in your notes
Price Quantity Demanded
$1.25 1
$1.00 3
$0.75 9
At your tables:
What do you notice about this demand?
Do these consumers care about price?
What product might fit this demand?
66. If I really care about price….
• Elastic Demand
– Very responsive to
price change
– Many substitutes
– Big part of budget
– Don’t buy very often
– Why important to
think about as a
firm?
Price/month
Quantity
D-nice apartments
1000
500
100
1000 5000 10,000
67. Graph this demand curve in your notes
Price Quantity Demanded
$1.50 3
$1.00 4
$0.50 5
At your tables:
What do you notice about this demand?
Do these consumers care about price?
What product might fit this demand?
68. If I will still buy it
• Inelastic Demand
– Not responsive to price
change
– Few substitutes
– Small part of budget
– Why does government
often control prices of
inelastic goods?
– Illegal drugs?
Price/dose
Quantity
D-dialysis100
1 2 3
200
300
400
500
600
700
71. Bellringer
1. Correctly draw the demand curve
for this market
2. What price should you choose to
maximize revenue?
3. What would happen to demand
if the average wage increased?
4. What would happen to demand
if soda was found to cause
diabetes?
5. What would happen to demand
if the price of juice tripled?Klein – graph on board
73. In the market for
XboxOnes
A. Demand for
XboxOnes will
increase
B. Demand for
XboxOnes will
decrease
C. Quantity demanded
for XboxOnes will
increase
D. Demand for PS4s
will increase
74. In the market for
PS4s
A. Demand for PS4s
will increase
B. Demand for PS4s
will decrease
C. Quantity
demanded for
PS4s will increase
D. Quantity
demanded for
PS4s will decrease
77. On a separate sheet of paper
Graphically sketch the changes to the demand curve, 1 curve won’t change
Identify the part of TRIBE Label your graphs
1. Unemployment rises (steak)
2. New residents move to Arizona (houses)
3. The price of buns increases (hot dogs)
4. The internet gets more expensive (itunes mp3’s)
5. Unemployment rises (Canned Ham (SPAM))
6. You go to college (text books)
7. Average wage rises 10% (Hawaiian vacations)
8. Stock market increases in value (used clothing)
9. The price of meat increases (A1 steak sauce)
10. Eegees releases a brand new flavor (slushies)
11. Gas prices increase to $6.50/gallon (bicycles)
12. Xbox360 games get cheaper (Xbox360 games)
13. Dept of Labor reports college grads earn more $$ (college degrees)
14. You read an article that gas prices will triple next month (gas)
15. Make up your own example and show demand shift
$
Q