http://www.youtube.com/watch?v=CouzZNjuyRM&feature=related JA Economics Demand – Chapter 3 http://www.youtube.com/watch?v=kKAU856roF0&feature=related

Why it Matters Consumer Limited Income Good choices You will always be a consumer with limited income so you want to make good choices

FREE enterprise entrepreneurship Private Property The Price System Page 32 FREE enterprise Market competition Voluntary exchange entrepreneurship Private Property The Price System Specialization You participate in these two almost daily when you buy things in the market. The prices you have become accustomed to during your life change and as they change do you ever think of why?

Influences of the Market Entrepreneurs bring new products to the market Interest in the new product Economy evolved People traded with one another We talked about entrepreneurs and how when they bring more products into the market they increase the money supply. Well this influences the market. Although you may not be able to buy the product, your interest will affect the market as it drives the free enterprise economy

Law of Demand The law of demand states that demand has an inverse relationship between the quantity demanded and the price of a product. People will buy more at lower prices than at higher prices. Inverse means the direct opposite.

TEST QUESTION Demand What does it mean? Economists usage. Page 33, “How many hamburgers would you buy?” Demand means quantities of a particular good or service that consumers are willing to buy (and able to buy) at different prices at a particular time. You might want a new Iphone but if you don’t have the money, you are not able to buy it so you personally would not affect the demand of Iphones.You would however affect the demand of snack foods at the oasis during the weekdays versus what they sell on weekends. Specifically during lunch Monday thru Friday. We looked at page 33 for bellwork. Lets go through that again now. TEST QUESTION

TEST QUESTION Think of prices How many cookies would the students demand if the price was 60 cents? 200 How many cookies would the student demand if the price was 20 cents? 1600 At a high price buyers are less likely to buy the cookies (price effect) At the lower price, the number of buyers increases as their buying power is increased by the lower price. Buying power is the quantity people can buy with a given amount of money Since we only had one ticket for purchase there was a higher price put on the ticket than if there were more tickets available. If the item we sold had not value to you, say just 5 extra points on a test, the likelihood of you buying the item would be less than you buying a ticket to drop an entire test grade. Although both affect your grade, the entire test grade is more valuable to a student than just the 5 extra points. The other thing that affects price is the diminishing marginal utility.

Diminishing marginal utility = reduced Marginal =additional Utility = satisfaction If you were to buy cookies at 35 cents every day for the entire school year, one day you will not enjoy the cookie any longer and your demand will diminish. After a while the cookies will make you feel sick just thinking of having one and you will no longer be satisfied. Due to diminishing marginal utility, there is a need for retailers to reduce the prices of items to increase the quantity demanded. Cookies will go on sale 2 for 50 cents and you may go back to buying cookies. Or for example you go to taco johns and get the six pack and a pound…. The first taco it great, but by the time you get to the third your more likely to not be as satisfied with the taco.

Market Demand Prices affect all of us but no two people necessarily respond the same. Take tom dick and harry. They all have their own demand as shown. But combined they result in the market demand.

Price Elasticity of demand Measurement Indicator See page 39 (milk and cola) Measure the impact of the price effect on a product as it indicates a buyer’s eagerness to buy a good or service. The milk is shown to bend at a price of one dollar and increases and stays steady on the way up in price where as the soda demand drops. Why is this? Revenue for each price changes as when you raise the price you make more money and but When soda’s price rises, what do you as a consumer do? (find substitutes) when milk prices go up what can you do? (no substitute) the larger the price in the soda, the more elastic the demand is as it adjusts by consumers finding alternatives. TEST QUESTION

Prices in 1990 Stamp: $0.25 Gallon of Gas: $1.16 Gallon Milk: $2.78

Prices in 2011 Stamp: $0.44 Gallon of Gas: $3.09 Gallon Milk: $3.67 The difference in price is gradual until you look at the difference this way. The longer you have to adjust to a price change, the more elastic the demand for the product tends to be. Three reason prices are more elastic are availability of substitutes such as the soda. Also, the percentage of the price of the item to your budget. If you were to making $40,000/year you would probably not buy a $40,000 car but if you were making $200,000 a year, the price change would not impact your decision as much. The last one is of course time which I just demonstrated by showing the prices of these items.

Change in Demand Does a change in price change demand? Look at page 41 What could cause the demand for gas to shift? Shift to the right means the people are demanding more at the same price. Larger vehicles are being purchased that are not fuel efficient. Change to the left means they are demanding less at the same price. So people are buying more fuel efficient vehicles, solar powered, or electric cars.

7 Factors that Affect Demand Change in Income Prices or Availability of Substitutes Prices or Availability of Complementary Goods Change in the Weather or Season Change in the Number of Buyers Change in Styles, Tastes, Habits Change in Expectations TEST QUESTION

Change in Income What can change your income? Acquiring an education, winning the lottery, someone leaving you an inheritance or getting fired.

Prices or Availability of Substitutes Public transportation What will happen if the price of public transportation would go up? What would that do to the demand of gas? (shift right)

Prices or Availability of Complementary Goods Price of chips goes down due to sale… What will consumer also buy? Shift to the right when the two goods tend to be consumed or used together in relatively fixed or standardized proportions Shift in demand will be to the right for airline tickets as the cost of fueling them will have to be taken into account with higher ticket prices.

Change in weather or season Ice cream sales increase in the winter or summer? Hot cocoa? How about holidays? Demand shifts left or right according to the seasonal demand.

Change in number of buyers Shift to the right the more buyers enter the market. If one more buyer enters a market of four customers where the normal quantity demanded is one hundred for each customer, that one additional customer will increase or shift the demand to the right by 100 units (or quantity demanded) Shift to the right due to more quantity being demanded.

Changes in styles, tastes and habits. Electric cars Electric cars will shift the demand of gas to the left.

Change in expectations Consumers look to the future If you knew the price of the new iphone was going to be cheaper than the current model would you buy it? How bout if you heard the ipad was going to double in price next month due to the cost of the electronics increasing in price?

Your Future SUPPLY! How does supply illustrate the price effect?

JA Economics Supply – Chapter 4

Why it Matters Understanding how the producers think. What good and services to produce? How should they be produced? Who will they be produced for? Remember in chapter 1 the basic economic decisions in a market economy? These questions will help up understand how the producers think.

Price Effect Demand Supply Consumers buy less of something at a higher price than a lower price Supply Producers are willing and able to produce more at a higher price

Law of Supply There is a positive relationship between the quantity supplied and the price of the product. As the price rises, the quantity supplied tends to increase. Supply is not the amount for sale today (or available for sale today) but it is a list of prices and quantities that a company is willing and able to supply. At 1 dollar the company is willing and able to produce 10. at 5 dollars, the company is willing and still able to produce 60

Graphing Supply Graphing Supply is similar to graphing demand turn to page 51 of the text. You have the price on the vertical axis and the quantity is on the horizontal axis. The supply line slopes upward and to the right because the producer of a product is more willing and able to sell more at higher prices where as the demand curve slopes downward to the right because consumers tend to buy more at lower prices.

Market Supply More than one producer in a market Marginal Costs differ Higher prices provide an incentive Marginal cost (the change in costs for additional output will be different for one producer of a product than another producer of a product. Due to marginal costs being different between producers, sometimes a producer will not even enter the market supply until a higher price as their marginal cost is higher than other producers. Higher prices lead to higher profits so this is the incentive for that producer to produce that number (or quantity) of goods or services at that price.

Price Elasticity of Supply Like demand there is elasticity in supply Depends on the response or ability of producers If a change in price causes a large change in the amount supplied, the price effect is significant and supply is considered elastic. So if the cost of chicken goes up, the ability for chicken farmers to produce more chickens quickly is great so the supply of chickens has an elasticity. The supply is able to move quickly, it is more flexible. Oil on the other hand is not as elastic as when the price of gas goes up, the oil producers can not increase the amount of oil coming out of their well easily. They can dip into reserve supplies or work their workers overtime by trying to squeeze more oil out of the wells. These two alternatives for oil producers though result in a higher marginal cost and the increase in supply is rather small. Responsiveness is the key here as if the company can respond quickly, then the supply of the product is elastic.

Entrepreneurs Increase supplies Raise employment Push incomes higher Remember the circular flow of money? We talked about how entrepreneurs increase products which result in new jobs and higher incomes and sales so the flow of money increases. This shifts the supply curve.

Price effect and supply Price effects supply like it does demand. There is no shift in supply when a price changes, it simply moves the quantity supplied. There is a shift on the line. This is the price effect.

TEST QUESTION Changes in Supply Changes in marginal cost of production Changes in the number of producers Change in expectations TEST QUESTION

Changes in Marginal Cost of Production Research Worker suggestion for efficiency Marginal cost of productions falls Companies will research ways to reduce their marginal costs and when this happens, the supply curve will shift. The producer will be able to produce more at a lower cost and so therefore they are willing and able to make available more at a lower cost. One the other hand, Prescription drugs are very expensive to research and produce in the USA due to the FDA and the testing required before the new drug is allowed on the market. When the new drug is approved, the manufacturer has a higher price at which it will sell them as they are trying to recover the amount of money spent before the drug even hit the market (or marginal cost). After the drug becomes a generic, the manufacturer now has to lower their price a bit to remain in the market place. This is also a good example for the next reason for changes in supply.

Changes in the Number of Producers New businesses Popularity In the United States the patent filed on a drug lasts for 20 years; however, because companies file even before clinical trials, by the time the drug hits the marketplace, the patent may only have between 8 to 10 years left. Once the patent expires, other companies can produce the drug using the same ingredients and bring their version to the market, introducing competition and generally lowering the prices for the drug due to a change in the number of producers Another example would be UGG boots. They became really popular and many other producers began to copy the style and entered the market.

Change in Expectations Price of oil Price of SUVs If the expectations of the price of gas is to continue to rise, producers may be more likely to reduce the supply now and leave more in the ground. If the manufacturer knows now that the price of SUVs will drop in the future, they may lower their prices now and increase their supply. This would shift the curve to the right.

Your Future Market-Clearing Price Combine chapters 3 and 4 Roles of prices in a market economy