Do First! What if the price of gas went up today to $10 a gallon. What problems do you think we would see in the country? How do you think this would affect you personally?

Markets A Market is any place where people come together to buy and sell goods and services. – Examples: Housing Market, Job Market, Shoe Market

A market has 2 sides A buying side Demand is the buying side of the Market A selling side Supply is the selling side of the market I want to buy lots and lots of Doritos! I’ll sell you some Doritos. How many do you want?

Demand The willingness and ability of a household to purchase a good a various price levels – More than just “wants” People have unlimited wants In economics, we focus on “market demand” not “individual demand” – Market demand = the sum of all the individual demands for a particular good or service We all want Doritos, and we’re willing to buy them!

Examples Example: Mary really wants a new car, but she doesn’t have the $34,000 needed to buy the specific one she wants. If she did have the money though, she says that she certainly would buy the car. Does Mary have willingness (wants it) and ability (afford it?). DEMAND?

Examples Example: Amy is shopping for a new cell phone. The one she likes is $129, which is within her price range. She was worried she wouldn’t have enough money, but she saved up and has just enough for the phone. Does Amy have willingness (she wants it) and ability (She can afford it)? DEMAND?

Law of Demand As the price of a good increases, quantity demanded of the good decreases And the other way around is also true... As the price of a good decreases, quantity demanded of the good increases

Quantity Demanded Quantity Demanded (Q d ) refers to the number of units of a good purchased at a specific price. I’ll have 8 bags of Doritos, please

Demand problems Example: What happens to apples if the price drops from $1.50 to $0.99? Answer: The Quantity Demanded Increases Example: What happens to bananas if the price increases from $1 to $2? Answer: The Quantity Demanded Decreases

You Practice Look back at the definition/examples of markets. List three other examples of markets that we did not list above Look back at the conditions needed to be in demand for a good. A) List 2 products that you are in demand for and explain why. B) List 2 products that you are not in the demand for and explain why.

Law of Demand Law of Demand - As the price of a good increases, the quantity demand decreases In Symbols: P Qd and P Qd

Demand Schedule Example At $4, Tim would by 1 ice cream cone. At $3, he would buy 2 ice cream cones. At $2, he would buy 3 ice cream cones, and at $1, he would buy 4 ice cream cones. PriceQuantity

Graphing Demand A. Label “Price” on the Vertical (Y) Axis B. Label “Quantity” on the Horizontal (X) Axis C. Label the numbers on X and Y axes D. Plot each point by Price and Quantity E. Connect the Dots and label your Demand Curve “D1” PriceQuantity

Graph of Demand Curve Price Quantity D1

Graphing Practice You will create your own Demand Schedule and Graph for a product of your choice Ex: Shoes, Books, Magazines, Food, Soda, Candy, Jeans, Gators jerseys, etc.

Individual vs Market Demand You just plotted an individual’s (your) demand for a product. To analyze how markets work, we need to determine the market demand

Individual to Market Demand What is your demand for a slice of pizza at the following prices: Price# of Slices $ 0.00 $ $ 1.00 $ 1.50 $ 2.00 $ 2.50 $ 3.00

Individual to Market Demand At each price, add up each of the quantities demanded by people at your table. Create a demand schedule for your table’s market demand. Graph the “market demand” of your table, making sure to label both axes, the scales, and D1

Shifts Demand is not always stable If something happens to change the quantity demanded at EVERY price, the whole curve shifts

What shifts the whole demand curve? Changes in: Income – Normal Goods – Inferior Goods Prices of Related Goods – Substitutes – Compliments Tastes Expectations

Normal and Inferior Goods Normal good- A good for which an increase in income leads to an increase in demand – Ex: If we all have more income, we’d be willing to buy more ice cream at any price than we did before Inferior good- An increase in income leads to a decrease in demand – Ex: As income falls, you are more likely to take public transportation than drive, so demand for public transport rises as income falls

Related Goods Substitutes: An increase in the price of one good leads to the increase in demand of the other – Ex: An increase in the price of ice cream would lead to greater demand for other dessert – Ex: An increase in the price of gasoline would lead to greater demand for other kinds of energy

Related Goods Compliments: An increase in the price of one leads to a decrease in the demand for the other – Ex: An increase in the price of peanut butter might lead to a decrease in the demand for jelly – Ex: An increase in price of gas might lead to a decrease in the demand for cars (that run on gas)

Shifting demand curves! What do you think would happen to the demand curve for popsicles if there were a heat wave? – Demand curve would shift out (right) What if the price of popsicles went up? – No shift: only movement along the curve What if popsicles were declared hazardous to your health by the American Medical Association? – Demand curve would shift in (left)

What makes the curve shift? Any time a “determinant” (income, prices of related goods, tastes, etc.) of demand changes, there is a shift in the curve. If price for a good changes, then there is no shift – only a movement along the curve