CH 3: VALUE & DEMAND

FOCUS… Economic Emphasis: to recognize how consumer demand influences prices Spiritual Emphasis: to discern values & how they are determined For where your treasure is, there your heart will be also. (Matt 6:21) He who is full loathes honey, but to the hungry even what is bitter tastes sweet. (Proverbs 27:7)

SECTION 3A OBJECTIVES Identify & explain the principle of diminishing marginal utility Describe the 3 functions of price

VALUE Remember the “Diamond-water paradox”? Value can be determined by the buyer rather than the item Values are not necessarily constant for a single individual: If you wanted a “YOUR FAVORITE” candy bar right now, you might be willing to pay $2-3 for it, BUT how much would you pay for a 5 th one? The 10 th one? Why does that value diminish?

PRINCIPLE OF DIMINISHING MARGINAL UTILITY “…people tend to receive less and less ( diminishing ) additional ( marginal ) satisfaction ( utility ) from any good or service as they obtain more and more of it during a specific period of time.” (46) Take a look at the MODEL on p46 Marginal utility schedule : “a tabular model based upon the observation of you eating a hypothetical the candy bars.” (46) Marginal utility curve : “the graphic representation of the marginal utility schedule.” (46)

3 FUNCTIONS OF PRICES Transmit information Provide incentives Redistribute income Read & discuss “How Demand Works” cartoon p49

SECTION 3B OBJECTIVES Define demand Define law of demand Explain how changes in demand occur

DEMAND Demand : “the number of units of a product that will be bought at a given price” (326) “the willingness of consumers to purchase a product [and] their action of purchasing it” (50) Law of demand : the lower the price, the greater quantity people will want; the higher the price, the lower the quantity people will want (50)

Demand schedule : “a table listing various quantities at various prices” (51) Demand curve : graph of the demand schedule Change in demand : when the demand curve shifts, the product is going through a change in demand Increase in demand =rightward shift Decrease in demand =leftward shift See graphs on p52 0

STABLE PRICE…DECREASED DEMAND Change in income Change in price of related good Change in tastes & preferences Change in expectations

CHANGE IN INCOME Normal goods : “an item for which demand typically increases when the buyers’ incomes increase” (330) Inferior goods : “an item that typically experiences a decrease in demand when the buyers’ incomes increase” (328)

CHANGE IN PRICE OF RELATED GOOD Substitute goods : “items that resemble one another and that may be used in place of each other” (332) Complementary goods : items that are usually purchased or used together “Whenever a change in price causes a change in the number of items demanded, a change in quantity demanded has occurred.” (52)

CHANGE IN TASTES & PREFERENCES What do you like now that you didn’t when you were a kid? What didn’t you like as a kid that you now like?

CHANGE IN EXPECTATIONS IF you know the price of something will increase next week you will most likely… Higher demand = rightward shift on demand curve IF you know the price of something will decrease next week you will most likely… Less demand = leftward shift in demand curve

CHAPTER 3 ACTIVITY 3 (WB 23)

APPLICATION QUESTIONS Why spend money on what is not bread, and your labor on what does not satisfy? Listen, listen to me, and eat what is good, and your soul will delight in the richest of fare. (Isaiah 55:2) You have planted much, but have harvested little. You eat, but never have enough. You drink, but never have your fill. You put on clothes, but are not warm. You earn wages, only to put them in a purse with holes in it.” (Haggai 1:6)

and constant friction between men of corrupt mind, who have been robbed of the truth and who think that godliness is a means to financial gain. But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. (1 Timothy 6:5-11)