Overview of Section 2 http://bcs.worthpublishers.com/Krugman_AP_Econ2e/#944422__944584__ Pay close attention

If gas is so cheap why isn’t the economy doing better? http://www.dailyfinance.com/2015/06/10/why-lower-gas-prices-havent-helped-economy-much/

Warm Up Read the article. Answer these questions: What is the problem? What are the solutions?

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5 KEY ELEMENTS TO SUPPLY & DEMAND THE DEMAND CURVE THE SUPPLY CURVE FACTORS THAT CAUSE CURVES TO SHIFT MARKET EQUILIBRIUM HOW MARKET EQUILIBRIUM CHANGES WHEN SUPPLY OR DEMAND CURVE “SHIFTS”

[We all in live in a] Competitive Market A market in which there are many buyers and sellers of the same good or service.

Who might be interested in knowing the price of a good or service and how it might change in the future? Who might be interested in knowing the quantity of a good or service that will be sold in a market and how that quantity might change in the future? How could you benefit from knowledge of an upcoming price change?

Demand is the different quantities of goods that consumers are willing and able to buy at different prices. (Ex: Bill Gates is able to buy a Ferrari, but if he isn’t willing to then he has NO demand for one) The law of demand states there is an INVERSE relationship between price and quantity demanded : AS PRICE GOES UP THE QUANTITY DEMANDED WILL DROP & AS PRICE DROPS DEMAND RISES

As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls

Demand, in other words.. http://www.youtube.com/watch?v=uXlZIn6W7Ew https://www.youtube.com/watch?v=LwLh6ax0zTE Might want to take notes.

The law of demand is the result of three (3) separate behavior patterns that overlap: The Substitution effect The Income effect The Law of Diminishing Marginal Utility

1. The Substitution Effect If the price goes up for a product, consumers buy less of that product and more of another substitute product (and vice versa) 2. The Income Effect If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.

3. Law of Diminishing Marginal Utility Utility = Satisfaction The law of diminishing marginal utility states that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease In other words, the more you buy of ANY GOOD the less satisfaction you get from each new unit of that good.

The Law of Diminishing Marginal Utility

What does Disney have to do with this?

Disneyland’s pricing strategy is another example of marginal utility (law of diminishing demand) Change N/A $54 $33 $15 $10 $5

A demand curve is a graphical representation of a demand schedule or table. The demand curve is downward sloping showing the inverse relationship between price (always on the y-axis) & quantity demanded (always on the x-axis) When reading a demand curve, assume all outside factors, such as income, weather, etc. are held constant or equal (ceteris paribus)

GRAPHING DEMAND FOR CALVIN’S CEREAL Demand Schedule Price of Cereal $5 4 3 2 1 Price Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 o 10 20 30 40 50 60 70 80 Q Quantity of Cereal

Demand Schedule Price of Cereal $5 10 $4 20 $3 30 $2 50 $1 80 Demand o Quantity Demanded $5 10 $4 20 $3 30 $2 50 $1 80 Demand o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 21

Keys to Graphing Supply & Demand 1. The slope of the curve is always down and to the right 2. A change in demand at the same price requires a SHIFT but a change in demand due to a change in price is show as MOVEMENT along the curve

DEMAND vs. QUANTITY DEMANDED A change in the quantity demanded is a movement from one point to another on the demand curve. (DUE TO PRICE) A change in demand itself is a shift of the entire curve (DUE TO A M.E.R.I.T. FACTOR) Or if you remember your Civics- BITER

Demand Will Shift if there is M.E.R.I.T 1. Market Size: 2. Expectations 3. Related Prices (compliments/substitutes) 4. Income (normal & inferior) 5. Tastes

What were the five MERITs and give an example for each one Warm Up What were the five MERITs and give an example for each one

Demand Will Shift if there is M.E.R.I.T 1. Market Size: 2. Expectations 3. Related Prices (compliments/substitutes) 4. Income (normal & inferior) 5. Tastes

identify how each of the following would change the demand (shift right, shift left, move along). Answers: 1. D-right 2. D-right 3. D-left 4. D-right 5. Along 6. D-right

Are you willing and able? Then, you have demand!! Remember: Demand Are you willing and able? Then, you have demand!!

A M.E.R.I.T. FACTOR HAS CAUSED A SHIFT IN THE DEMAND CURVE (NOTE IT IS TO THE RIGHT REFLECTING THE INCREASED DEMAND. A DECREASE IN DEMAND WOULD MEAN A SHIFT TO THE LEFT)

Key Terms Substitute good is one whose demand goes up when the price of another good goes up (coffee and tea are examples of this) Compliment goods are ones usually used together and thus if demand for one falls then demand for the other will also fall (cars and gasoline are examples of this) Most goods are “normal” (demand increases as income rises) but some are “inferior” (demand drops as income rises…for example buses…as income rises people tend to then take taxis)

PAGE 55 OF THE TEXTBOOK TO SEE THE INDIVIDUAL DEMAND CURVE OF (a) and (b) and then note that (c) Is the sum of all the individual demand curves of all consumers. In this case Darla and Dino.

Billy Jean Other Individuals Market $5 1 $4 2 $3 3 $2 5 $1 7 $5 $4 1 How to get the Market Demand / add the demand of each consumer at the market equilibrium point of each consumer Billy Jean Other Individuals Market Price Q Demd $5 1 $4 2 $3 3 $2 5 $1 7 Price Q Demd $5 $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 P P P P $3 $3 $3 $3 D D D D Q Q Q Q 3 2 25 30

See table on page 56

To Summarize: Change in price Change in quantity demanded

Draw two demand graphs of substitute goods Warm Up Draw two demand graphs of substitute goods Then, show a rise in price of one and the effects on the other.

CPT-Drawing a Demand Curve Choose a product from the list below Brainstorm five possible prices Create questions you will ask, for example, “if the price is ____, how many will you buy (in a week, month, or year?) Each team member interviews Graph your demand curves Draw out MERITs that can change your demand-one for each letter. They shift inward or outward. Laptop Jordans iPhone 6 private parking space xBox test pass

Create Posters with phrases to help us remember AP Econ For example: are you on your PPC? Must have a catchy phrase and nonlinguistic representation!

Demand Worksheet https://www.youtube.com/watch?v=LwLh6ax0zTE

Did we get it? https://www.youtube.com/watch?v=W7FCZ4i-JgI

Review: Draw a demand curve. Label correctly all parts Watch for review: https://www.youtube.com/watch?v=outYDTq-jPc Remember MERIT https://www.youtube.com/watch?v=_8T8glylBFc