Demand Adapted from Capstone Economics Unit 2, Lesson 8

Today’s Goals Students will understand what Demand is. Students will understand what The Law of Demand is. Students will understand what a Demand Shift is. We will access these goals by generating and interpreting data from an in-class activity.

The set up One day you are shopping with your friends, and you walk into a small greeting-card shop close to school to buy a birthday card for one of your relatives. While you are checking out the cards, you overhear the owner complaining that a certain style of card is not selling, and the display of that card is taking up precious space in the small store. “Unfortunately, I bought these cards up front and they cannot be returned,” he says. “I guess I will just throw them away and use the space for something that has a better chance of selling.” As the store owner looks over to you and your friends, he continues: “I learned in my economics class in high school that a person shouldn’t cry over spilt milk or let costs incurred in the past influence future choices — right?” It becomes obvious that the owner is soliciting a response from you.

What should the owner do? Do you support the owner’s view, or do you suggest an alternative course of action? Possible answers: Throw the “dogs” away Lower the price of the cards Place the cards in a different location Advertise Recycle them

SALE!

Why do businesses put things on SALE?

When business people put products on sale, they are attempting to predict consumer behavior. They are predicting that the number of products bought will increase at lower prices. That is not the only possible way to increase sales, of course. If the owner could change his customers’ perception of value for the cards, the customers also would buy more. Changing customers’ perceptions is one of the purposes of marketing through advertising.

Auction Time!

On the blank side, create a demand schedule based on the data we gather together. Use about a third of the sheet Candy Bar Demand Schedule PRICEQUANTITY DEMANDED.10

Some questions Did anyone choose not to bid on the item? What goes through your mind before a bid is made? Why does a higher price reduce the number of items demanded? Once a price is established in the market, do you think it stays the same for long periods?

Graphing the data What would be a good set of numbers to use for the Quantity demanded axis?

Your graph should have some resemblance to this.

The Law of Demand As prices for goods or services rise, the quantity people are willing and able to buy declines. As prices for goods and services fall, the quantity people are willing and able to buy increases.

Auction Time! New Variables! This time, you can write me an IOU if you do not have enough liquidity (money on hand).

On the blank side, create a second demand schedule based on the data we gather together Candy Bar Demand Schedule PRICEQUANTITY DEMANDED.10

Graphing the data Graph the new demand information on the same graph. Label your first demand curve, D1, and your new demand curve D2 What do you notice?

Demand should have “shifted” to the right

How would demand shift for the following situations? The demand for cars when people get a tax refund An increase of demand(shift right) The demand for shovels after the first snow storm An increase of demand (shift right) The demand for hot dogs when the price of hot dog buns rises A decrease of demand (shift left) The demand for gasoline today when people expect prices to fall tomorrow A decrease of demand (shift left)

Quick Question 1.The law of demand states: A.There is a positive relationship between price and quantity demanded. B.The graph of a demand curve is an upward sloping line. C.People usually buy less goods and services when their price rises. D.People’s behavior in the marketplace is unpredictable.

Article: Why Chefs Hate Valentine’s Day Read the article by yourself and think about the questions. (4 minutes) Now pair up with someone close to you (no moving seats) and talk about the questions together. (3 minutes)

Why Chefs Hate Valentine’s Day What does this article have to do with demand? Who decides how much a dinner on February 14 th will cost? Is it fair that restaurants charge up to $ for a meal on February 14 th ? Is dinner on February 14 th more or less scarce than on other days? Do you think that Mr. Miller went out to a fancy Valentine’s dinner with his beautiful wife?

Today’s Goals Students will understand what Demand is. Students will understand what The Law of Demand is. Students will understand what a Demand Shift is.

Demand Determinants Income Normal Good: a good for which demand increases as consumer incomes rise (cars) Inferior Good: A good for which demand decreases as consumer incomes rise (ground chuck, bus rides) As income rises consumers tend to shift/ switch from consuming these inferior goods to consuming normal goods (ex. steak, car/plane)

Demand Determinants con’t. Preference/Taste Likes and dislikes in consumption Consumer Expectations Change in future price of goods Change in future income Population Change As the number of consumers in a market changes, the demand will change

Determinants con’t Prices of Related Goods Substitutes: Goods that are related in such a way that an increase in the price of one leads to an increase in the demand for the other [goods that can be consumed in place of one another] Compliments: Goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other [goods that are normally consumed together] (hamburgers and french fries, or skis and ski boots)