Individual Demand Remember- Demand goes Down Quantity Demanded (bushels per week) Price (per bushel) PQdQd $ Individual Demand P Q D

Law of Diminishing Marginal Utility Each buyer of a product will get less utility from each extra unit consumed Consumers will only buy more units if the prices become progressively cheaper Ex- the 4 th Big Mac will give less satisfaction than the 3 rd, 2 nd, 1st

Income Effect A lower price increases the purchasing power of a buyer’s income A higher price has the opposite effect Ex:

An Increase in Demand A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve. Increase in population  more coffee drinkers Price of coffee beans (per gallon) $ D 1 D 2 Demand curve in 2006 Demand curve in 2002 Quantity of coffee beans (billions of pounds)

Movement Along the Demand Curve $ D 1 D 2 AC B A shift of the demand curve… … is not the same thing as a movement along the demand curve Price of coffee beans (per gallon) Quantity of coffee beans (billions of pounds) A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good’s price.

Shifts of the Demand Curve A “decrease in demand”, means a leftward shift of the demand curve: at any given price, consumers demand a smaller quantity than before. (D1  D3) Price Quantity D 3 D 1 D 2 Increase in demand Decrease in demand An “increase in demand” means a rightward shift of the demand curve: at any given price, consumers demand a larger quantity than before. (D1  D2)

Why Are Their Demand Shifts? Demand for a good or service changes/shifts when there is a change in: – Consumer’s preferences or incomes – The prices of related goods or services – The number of consumers in the market THEN

Determinants of Demand Changes In: TRIBE T- Tastes R- Price of Related Goods I- Income of Buyers B- # of Buyers E- Expectations of the Future

Substitution Effect At a lower price, buyers will substitute a good in exchange for the higher priced alternative and vice versa Ex- If the price of chicken lowers, the buyer will buy less beef, pork etc.

Substitute Goods one that can be used in place of another good An increase in the price of one good will increase the demand of its substitutes and vice versa

Complementary Goods One good that is used together with another good If the price of one goes up, the demand for the complement will decline and vice versa Ex- Peanut butter and Jelly, tuition and textbooks

Q Price E S D E1 D1

Q Price E S D E1 D1

Supply Shifts Supply of a good or service changes/shifts when there are changes in: – The prices of productive resources used to make the good or service – Number of sellers in a market – The opportunities for profit available to producers of other goods or services – The technology used to make the good or service

Determinants of Supply R- Resource Prices- Inputs that go into making a good(s) O- Other Goods’ Prices - Substitutes (milk/cheese) in production and joint products (mulch/lumber) T- Taxes and Subsidies T – Technology Change- increased/decreased efficiency E- Expectations of Suppliers- expect. of future prices N- Number of Sellers- more suppliers = higher Supply

Supply Shifts The cost of ammunition to private consumers in the United States skyrocketed following the September 11 th attacks, as the United States prepared for military action in the Middle East. Why? What happened to cause this?

Market Price AKA Equilibrium Price Reached when demand & supply curves intersect – price when the supply of goods in a particular market matches demand – for a manufacturer, the price that maximizes a product's profitability.

Q Price E S D S1

Q Price E S D S1 E1

Q Price E S D E1 D1 You Try It! With your partner, come up with an example that explains what is happening.

Q Price E S D E1 D1 You Try It! With your partner, come up with an example that explains what is happening.

Q Price E S D S1 You Try It! With your partner, come up with an example that explains what is happening.

Q Price E S D S1 E1 You Try It! With your partner, come up with an example that explains what is happening.

Student Assignment Brainstorm three products that have had a price increase or decrease in your lifetime. – Identify what factors have caused the price shift – Graph it and provide a 1-2 sentence explanation of your analysis.