1. Chapter 4: Demand

2. Table of Contest Slope Normal/Inferior Goods Law of Demand Change in QD vs. Demand PYNTE

3. Donut Activity

4. Slope  The angle of a line  Rise over Run  Change in Y over the change in X  Equation: Y2 – Y1 X2 – X1

5. Slope YX PriceQuantity $120 $210

6. Slope YX PriceQuantity $120 $210 Y2 – Y1 X2 – X1 _2 – 1_ 10 - 20 _1_ -10 NEGATIVE SLOPE DEMAND

7. What is the difference between… Demand Created when consumers are willing and able to purchase Negative Slope (Down & to the Right)Supply Businesses are willing and able to sell Positive Slope (Up & to the Right)

8. Supply and Demand (From Pieces to Weight by 50 Cent, pages 46-47) “I think its taught backward in school. There, its “supply and demand,” where companies come up with a whole bunch of [stuff] and supply it. Then the companies fool people into thinking that they need the [stuff] they’re pushing, thereby creating an artificial demand. But the streets figured it correctly: The demand comes first, and whoever has the supply will profit.”

9. Demand Example “Every aspect of human behavior reacts to cost in some way. When the cost of something falls, it becomes more attractive to us. You can learn that by deriving a demand curve, or you can learn it by shopping the day after Christmas, when people snap up things that they weren’t willing to buy at full price several days earlier. Conversely, when the cost of something goes up, we use less of it. --Naked Economics, page 10

10. Income Effect INCREASE POORER  As prices INCREASE, you feel POORER DECREASE RICHER  As prices DECREASE, you feel RICHER PP

11. Income Effect “Being able to buy goods cheaper is essentially the same thing as having more income” --Naked Economics, p. 36

12. Substitution Effect  Consumption is a reaction to prices of other goods

13. What is the difference between… Substitute  Goods used in place of one another  Example: Hamburgers for Hot Dogs Complement Goods that are bought and used together Examples: Hamburger and Hamburger bun

14. Substitution Effect  If the Price of a substitute good DECREASES, the quantity of the product you wanted to buy DECREASES Example: You want Hot Dogs! Hamburger PQ Q Hot Dog Result: you buy LESS hot dogs!

15. Substitution Effect You wanted a PlayStation 3. The Nintendo Wii just went on sale at Best Buy. Most people will buy the Nintendo Wii— NOT the PlayStation 3

16. Substitution Effect  If the Price of a substitute good INCREASES, the quantity of the product you wanted to buy INCREASES Hamburger Hot Dog Example: You want Hot Dogs! P Q Q Result: you buy MORE hot dogs!

17. Opening Questions 1.A positive slope represents _____________ 2.A negative slope represents ____________ 3.A complement to jeans is ____________ 4.A substitute to jeans is ______________ 5.If the price of jeans increases, what happens to the quantity demanded of khakis? __________

18. Opening Questions 1.A positive slope represents Supply 2.A negative slope represents Demand 3.A complement to jeans is Shirt 4.A substitute to jeans is Khakis 5.If the price of jeans increases, what happens to the quantity demanded of khakis? Increases

19. What is the difference between… Normal Good  A good that consumers demand MORE of as their income INCREASES  Ex: Butter, Filet mignon Inferior Good  A good that consumers demand LESS of as their income DECREASES  Ex: Margarine, hamburger

20. What is the difference between… Necessity  A good people will always buy, even when the price increases  AKA: need  Ex: Milk, Water, life- saving medicines Luxury  A good people do NOT necessary need for survival  AKA: want  Ex: Mercedes-Benz, Steak

21. What is the difference between demand that is… ELASTIC  Very sensitive to a change in PRICE  Many substitutes  Majority of budget  A luxury  Response quickly over time INELASTIC  NOT very sensitive to a change in PRICE  Lack of substitutes  Small amount of budget  A necessity  Can NOT respond quickly to change

22. Demand Schedule  A table that lists the quantity of a good A PERSON will purchase at each different price

23. Demand Curve  A graphic representation of a demand schedule  The quantities demanded by an INDIVIDUAL at different prices  Slopes “Down and to the Right”; has a Negative slope

24. Market Demand Schedule A table that lists the quantities of a good that ALL CONSUMERS in the market will purchase at each different price

25. Market Demand Curve  A graphic representation of a market demand schedule  The quantities demanded by ALL CONSUMERS at the same prices  Slopes “Down and to the Right”; has a Negative slope

26. Law of Demand  As prices DECREASE, Consumers purchase MORE of a product  As price INCREASE,  Consumers purchase LESS of a product P QDQDQDQD P QDQDQDQD

27. Inverse Relationship  Explains the Law of Demand BOTH OPPOSITE  When BOTH variables move in OPPOSITE directions

28. What makes you want to buy something? Where you live (weather) Price Quality Income/money to spend Addiction Investment Upgrade / add-on Convenience Comfort Pleasure Advertisements Necessity / survival Desire / want Look / appearance Other people have it Brand name

29. Change in Quantity Demanded PRICE!!!  Cause: ONLY by a change in PRICE!!! (“ceteris paribus”) MOVEMENT  Result: MOVEMENT along the demand curve

30. Ceteris Paribus PRICE  Means “all other things held constant” except PRICE  Explains changes in quantity demanded

31. Increase in Quantity Demanded PRICE!!!  Cause: ONLY by a DECREASE in PRICE!!! MOVEMENT  Considered a MOVEMENT along the demand curve to the RIGHT

32. Increase in Quantity Demanded

33. Decrease in Quantity Demanded PRICE!!!  Cause: ONLY by An INCREASE in PRICE!!! MOVEMENT  Result: MOVEMENT along the demand curve to the LEFT

34. Decrease in Quantity Demanded

35. Review Starting at point X, which point represents: 1.An Increase in Quantity Demanded 2.A Decrease in Quantity Demanded 3.Caused by Price Increasing 4.Caused by Price Decreasing

36. Review Starting at point X, which point represents: 1.An Increase in Quantity Demanded - Z 2.A Decrease in Quantity Demanded - S 3.Caused by Price Increasing - Z 4.Caused by Price Decreasing - S

37. What is the difference between… PRICE (ceteris paribus) Cause(s)QUANTITY (PYNTE variables) Movement along Demand Curve ResultsShift of the Demand Curve Change in Quantity Demanded CalledChange in Demand

38. Movements and Shifts

39. Change in Demand  Caused : Consumers purchasing different QUANTITIES of a product than before  Result:SHIFT of the demand curve  Usually keeps the SAME SLOPE

40. Increase in Demand INCREASES  Cause: Quantity INCREASES RIGHT  Result: Shift to the RIGHT

41. Decrease in Demand DECREASES  Cause: Quantity DECREASES LEFT  Result: Shift to the LEFT

42. Causes of Change in Demand P: Price of Related Good Y: Income N: Number of Demanders T: Taste E: Expectations

43. P rice of related goods Substitute  Goods used in place of one another  Example: Hamburgers for Hot Dogs Complement Goods that are bought and used together Examples: Hamburger and Hamburger bun

44. Price of Related Goods: Substitution 1. Price of hamburgers Increases (Hamburgers) *** HOT DOGS ***

45. Price of Related Goods: Substitution 2. Price of hamburgers Decreases (Hamburgers) *** HOT DOGS ***

46. Price of Related Goods: Complement 1. Price of hot dog buns Increases (Hot Dog buns) *** HOT DOGS ***

47. Price of Related Goods: Complement 2. Price of hot dog buns Decreases (Hot Dog buns) *** HOT DOGS ***

48. Y --Income Normal Good  A good that consumers demand MORE of as their income INCREASES  Ex: Butter, Filet mignon Inferior Good  A good that consumers demand LESS of as their income DECREASES  Ex: Margarine, hamburger

49. Income: Normal Good 1.Income Increases2. Income Decreases

50. Income: Inferior Good 1.Income Increases2. Income Decreases

51. N —Number of Demanders 1.Population Increases2. Population Decreases

52. T --Taste 1.People Prefer2. People do NOT Prefer

53. E xpectations E xpectations 1. Expect the BEST Expect price to Increases *** NOW *** (Later)

54. *** NOW *** (Later) E xpectations E xpectations 1. Expect the WORST Expect price to Decreases

55. Causes of Change in Demand P: Price of Related Good Y: Income N: Number of Demanders T: Taste E: Expectations

56. Original Product: Oranges The Price of Apples has increased. What is the PYNTE variable? _____

57. Original Product: Oranges The Price of Apples has increased. What is the PYNTE variable? P (substitution)

58. Original Product: Oranges The Price of Apples has increased. What is the PYNTE variable? P (substitution) Which direction does the graph shift?

59. Original Product: Oranges The Price of Apples has increased. What is the PYNTE variable? P (substitution) Which direction does the graph shift? OrangesApples Price Quantity

60. Original Product: Oranges The Price of Apples has increased. What is the PYNTE variable? P (substitution) Which direction does the graph shift? OrangesApples Price Quantity

61. Original Product: Oranges Oranges will be on sale next week. What is the PYNTE variable? _____

62. Original Product: Oranges Oranges will be on sale next week. What is the PYNTE variable? E (Expectation)

63. Original Product: Oranges Oranges will be on sale next week. What is the PYNTE variable? E (Expectation) Which direction does the graph shift?

64. Original Product: Oranges Oranges will be on sale next week. What is the PYNTE variable? E (Expectation) Which direction does the graph shift? NOWLater Price Quantity

65. Original Product: Oranges Oranges will be on sale next week. What is the PYNTE variable? E (Expectation) Which direction does the graph shift? NOWLater Price Quantity

66. Original Product: Hamburger A. The price of chicken falls. What is the PYNTE variable? _____

67. Original Product: Hamburger A. The price of chicken falls. What is the PYNTE variable? P (Substitution)

68. Original Product: Hamburger A. The price of chicken falls. What is the PYNTE variable? P (Substitution) Which direction does the graph shift?

69. Original Product: Hamburger A. The price of chicken falls. What is the PYNTE variable? P (Substitution) Which direction does the graph shift? HamburgerChicken Price Quantity

70. Original Product: Hamburger A. The price of chicken falls. What is the PYNTE variable? P (Substitution) Which direction does the graph shift? HamburgerChicken Price Quantity

71. Standards 6.2.12E 6.5.12A