How much would you pay? 1 cow? 3 stocking hats? 1 bag of Jolly Ranchers? 2 tickets to Las Vegas? An A in economics ?

Topic 3 – Demand, Supply and Prices

Microeconomics Studies how the individual parts of the economy make decisions to allocate limited resources in markets where good or services are being bought and sold.

DEMAND Topic 3 – Lesson 3

Would you pay $1 for a slice of pizza? Demand – The desire to own something and the ability to pay for it Words to associate with demand: Consumers

Law of Demand – INVERSE RELATIONSHIP As price decreases, demand increases As price increases, demand decreases

What do the points on this graph represent?

Change in QUANTITY DEMANDED Only a change in PRICE! Can move you along the demand curve This is called a CHANGE IN QUANTITY DEMANDED

If something other than price changes… CHANGE IN DEMAND

5 Factors that Shift The Demand Change in the Number of Buyers Population, migration Change in values: Consumer Tastes Trends, fads, good or bad reviews

5 Factors that Shift Demand Curve 3. Change in values: Consumer Income Normal good….demand more as income rises Inferior good….demand less as income rises 4. Change in values: Price of other goods Compliments…….peanut butter and jelly prices Substitutes……….chicken or beef 5. Change in values: Expectations Will there be a sale soon?

Elasticity How responsive consumers are to price changes How much will a buyer cut back or increase their demand for a good when the price rises or falls?

Demand for a good that you will keep buying despite a price increase. Inelastic Elastic Demand for a good that you will keep buying despite a price increase. Price change has little impact on demand Ex: Gas, Cigarettes, Coffee, Medicine Demand is much less for a good after a small price increase. Price change has impact on demand Ex: Luxury Items

Factors Affecting Elasticity What is essential Factors Affecting Elasticity What is essential? What goods must I have, even if the price rises greatly? Availability of substitutes If there are few (ex. Concert ticket)? If there are lots? Relative Importance How much do you spend on a particular good? Necessities vs. Luxuries Toothpaste? Calamari?

ELASTIC OR INELASTIC?