Demand Section 1 – Nature of Demand Chapter 4 Demand Section 1 – Nature of Demand

Review with Partner 1. What is the fundamental economic problem? 2. What are the three productive resources? What is marginal analysis? What are opportunity costs and explain how we calculate them using comparative advantage? What does it mean to be producing inside the PPC? How many TV’s are in your house? Name as many Disney films as you can.

Quantity Demand The amount of a good or a service that a person is willing and able to buy at each particular price

Law of Demand Increase in a goods price causes a decrease in the quantity demanded. A decrease in a goods price causes an increase in the quantity demanded. INVERSE RELATIONSHIP Price Quantity Demanded

Income / Substitution Effect Income Effect – the amount of money, or income, that people have available to spend on goods and services is called their purchasing power. Any increase or decreases in a persons purchasing power caused by change in price is called the income effect. Substitution Effect – the tendency of consumers to substitute a similar, lower priced product for another product. Example – Dr. Pepper and Dr. Skipper

Diminishing Marginal Utility The more units consumed of one item, the amount of satisfaction received declines. A New Car

Demand Curve Plots the information on the demand schedule. PRICE Quantity Demanded

Pay attention boys and girls! Bartz’s Demand Slope Slope = Change in Y / Change in X Pay attention boys and girls!

Slope Slope = rise = change in vertical axis = y run change in horizontal axis x Example - slope = -5 25 What does this mean? If my price is lowered 5 $ then there would be 25 more products demanded by the public.

Determinants of Demand Consumer taste and preferences Potential consumers Money income Complementary and substitute Goods Price Expectations

Review With your Partner 1. What is the relationship between Price and Quantity Demand? 2. Explain Slope and why would a company calculate their slope? 3. Explain what an elastic product is? 4. Explain what an inelastic product is? 5. Draw the demand curve with your elbow. 6. What are the 5 determinants demand? 7. How many uncles and aunts do you have? 8. Name as many California colleges you can?

Supply A willingness to sell a product at a certain price Law of Supply – People will sell more of a product at a higher price than a lower a price.

Supply Schedule PRICE AND QUANTITY SUPPLIED ARE DIRECTLY RELATED As one goes up the other goes up! QS P

Supply Curve Plots the information from the supply schedule Price Q/S

Determinants of Supply Resource Prices Production Technology Labor Productivity Taxes, Subsidies, Regulations

Increase in Supply Curve shifts to the right Price Q/S

Decrease in Supply Shift to the Left Price Q/S

Combine Demand and Supply Price Market Equilibrium D Quantity

Market Equilibrium Point that supply meets demand… Point that the price is determined… S The supplier should make 1000 and sell the item for 5$ 5 Price D 1000 Quantity