09/03/14  Warm-up:  Use Laptops to Check Rubric Scores on PPC Curve in Turn it in.com Determine whether to complete alternative assignment to improve your score  Double check for submission of An Economic Story as final assessment of Foundations of Economics Unit.

Time to think!  What do you consider when making a purchase?

 Did anyone choose not to bid?  What did you consider when bidding?  What happened to quantity demanded as price increased?  Why? Candy Auction

 The quantity demanded of a good falls when the price rises (and vice versa), ceteris paribus  A change in price will lead to a change in quantity demanded  A demand curve is downward sloping The Law of Demand D P Q Market for…

 I.O.U.s  How did your decisions change with the introduction of I.O.Us?  The demand curve shifts whenever there is a change in quantity demanded at every price level. Candy Auction #2

 Income  Prices of Related Goods  Tastes/Preferences  Expectations  Number of Buyers Change in Demand

Labeling a Market Graph P Q Market for____________

DEMAND The law economists are most sure of!

 The quantity demanded of a good/service  when the price  (and vice versa), ceteris paribus  A change in price will lead to a change in quantity demanded The Law of Demand D P Q Market for…

 Any movement along the demand curve indicates a change in quantity demanded  A change in price cannot change demand, it can only change quantity demanded! Movement Along the Curve

 A change in demand means the quantity demanded at every price has changed Changes (Shifts) in Demand

 An  in demand means the quantity demanded has  at every price  The demand curve shifts to the right Increase in Demand

 A  in demand means the quantity demanded has  at every price  The demand curve shifts to the left  Left is less! Decrease in Demand

The Hudsucker Proxy (1994)

8/28/14  Warm-up: Assume the market for pizza is perfectly competitive.  If the price of pizza rises, what happens to the quantity of pizza demanded?  If the price of pizza rises, what happens to the demand for pizza?

Learning Goal  Students will be able to…  Identify the determinants of demand.  Accurately graph changes in demand.

1) Income 2) Prices of Related Goods 3) Tastes/Preferences 4) Expectations 5) Number of Buyers (Population size) Determinants of Demand

 The effect of income on demand depends on the type of good  normal good: a good for which an  y, leads to an  D, ceteris paribus (the reverse is also true)  inferior good: a good for which an  y leads to a  D, ceteris paribus (the reverse is also true) Income (y)

 substitutes: two goods for which an  P of one leads to an  D for the other (the reverse is true too)  muffins & doughnuts; coffee & tea; movie tickets & DVD rentals Prices of Related Goods

 complements: two goods for which an  P of one leads to a  D for the other (the reverse is true too)  peanut butter & jelly; printers & ink cartridges; hotdogs & hotdog buns Prices of Related Goods, Continued

Tastes/Preferences  If consumers come to prefer a good,  D  If a good or service falls out of favor,  D

 1) Expectations of future income  Expectations of higher income leads to an  D  Expectations of a lower income leads to a  D Expectations

Your Task  Using a ½ sheet of graph paper, draw a correctly labeled market graph.  Use the demand schedule to illustrate our first demand curve (D 1 )  Show the change in demand that came with an increase in income (D 2 ) Be sure to show the shift with an arrow

 2) Expectations of future prices  Expectations of higher prices leads to an  D  Expectations of lower prices leads to a  D Expectations

Number of Buyers (Think Population)  An increase in the number of buyers leads to an  D  A decrease in the number of buyers leads to a  D

Demanding INSECT  Income  Number of buyers  Substitutes  Expectations  Complements  Tastes

You MUST memorize the determinants of demand!!!

How much less of the good would you buy if….  The price of gum doubled? Explain.  The price of gasoline doubled? Explain.  The price of Starbucks drinks doubled? Explain.

 Warm-up: Imagine you are a business owner who would like to generate more revenue. Should you raise or lower prices? Explain. 8/28/14

Learning Goal  Students Will Be Able To (SWBAT) - State the law of demand; Graph a demand curve and explain its appearance.

 SWBAT: define and calculate price elasticity of demand, identify the determinants of elasticity, and apply the concept of elasticity to business decisions. Learning Goal

How much less of the good would you buy if….  The price of deoderant doubled? Explain.  The price of gasoline doubled? Explain.  The price of Starbucks drinks doubled? Explain.

Your Task  Read “Price Elasticity of Demand”  Code the reading using the following symbols  ! – This seems important  ? – This is a little confusing  ✔ - This makes a lot of sense  Look over the “Questions for Discussion”  Review your coding with your partner and work together to respond to the “Questions for Discussion

Jingle All The Way (1996)

 Rank the goods/services in terms of price elasticity of demand  The first item should be the one for which consumers would be most sensitive/responsive to a change in price – those with the most elastic demand  The last item should be the one for which consumers would be least sensitive/responsive to a change in price – those with the most inelastic demand Your task

 Fresh Tomatoes (4.6)  Foreign Travel (4.0)  Restaurant Meals (2.3)  Tires (0.95)  DVDs (0.9)  Physician Services (0.6)  Tobacco (0.45)  Coffee (0.25)  Gasoline (0.2)  Salt (0.1) Most Elastic to Most Inelastic

 When quantity demanded does not respond at all to changes in price  Price elasticity of demand = 0  Air, water, electricity, insulin, drugs (for an addict) Perfect Inelasticity

 When quantity demanded will drop to zero as a result of a price increase  price elasticity of demand = ∞  Goods in a perfectly competitive market Perfect Elasticity

 When the quantity demanded changes by the same percentage as a change in price  Price elasticity of demand = 1  Downward sloping demand curve  Most goods/services have a price elasticity of demand between.5 and 1.5 Unit Elastic

 Get laptop and review Rubric Scores posted on PPC Quiz in Turn it in, and make appointment to submit alternative quiz to improve your scores.  Check to ensure that “An Economic Story” – final summative assessment for Foundations Unit is submitted to TII. Journal Question– Copy and Respond: How do firms use elasticity to make decisions? 09/03/14 Warm Up:

Relatively Elastic PED > 1 Any % change in price will lead to a larger % change in quantity demanded Relatively Inelastic PED < 1 Any % change in price will lead to a smaller % change in quantity demanded Relative Elasticity

 If D for a good is unit elastic an  in price does not change total revenue  If D for a good is inelastic  in price leads to an  total revenue  If D for a good is elastic  in price leads to a  total revenue Total Revenue Test