1. Demand

5. Do you agree with the store manager or would you suggest an alternative action?

6. Why do stores put items on sale?

7. What would lead to an increase in sales of this card?

9. Demand
How much of a good or service someone is willing and able to buy at a given price.
Disclaimer
If you can’t afford it you cannot demand it.
If you don’t want it you wouldn’t want to demand it.

10. Law of Demand
Consumers buy more of something when it is cheaper and less when it is expensive.

11. Demand Schedule
This table lists the quantity of goods that an individual person or household would purchase at different prices.

12. Cans of Pop
Price
Quantity
Free
.25
.50
.75
1.00
1.25
1.50

13. Cans of Poop
Price
Quantity
Free
.50
1.00
1.50
2.00
2.50
3.00

14. Market Demand Schedule
This table lists the quantity of goods that all consumers combined would purchase at different prices.

15. Bag of M&Ms
Price
Quantity
Free
.25
.50
.75
1.00
1.25
1.50

16. Demand Curve Lowest to Highest Y axis = Price Lowest to Highest
X axis = Quantity Demanded

17. Things that impact demand
Price of the Product
The Consumer's Income
The Prices of related Goods
The Tastes and Preferences of the Consumer
The Consumer's Expectations
The Number of Consumer's in the Market

18. Substitution Effect
When a consumer chooses an alternative product because of a price change.

19. The Income Effect
When consumers buy less because of a change in real income.
Real income = actual buying power

20. Limits of the DC Only works if everything else stays the same.
Ceteris Paribus – All things constant.
In reality it is never this simple. People make decision based on more than just price.

21. Discuss with a partner What does the law of demand state?
What's a demand schedule?
What's the difference between a market demand schedule and a demand schedule?
How does the income effect impact demand for goods?

22. Shifting Curves
AKA a Change in Demand

23. Other than price, what are some reasons you would choose one product over another?

24. 3.50
3.00
2.50
2.00
1.50
1.00
.50

25. 3.50
3.00
2.50
2.00
1.50
1.00
.50

26. 3.50
3.00
2.50
2.00
1.50
1.00
.50

27. 3.50
3.00
2.50
2.00
1.50
1.00
.50

28. 3.50
3.00
2.50
2.00
1.50
1.00
.50

29. Demand Curve Shift Happens as a result of a change in demand.
Due to the factors other than price of the good in question.

30. Change in Demand Income Expectations Population Consumer tastes
Advertising
Prices in related goods
Substitutes or Complementary

31. Income
600
500
400
300
200
100

32. Income
600
500
400
300
200
100

33. “The price of this item may go up after Christmas”
Expectation
“The price of this item may go up after Christmas”
600
500
400
300
200
100

34. Expectation
“I read in the paper that there will be a promotion next week on I phones”
600
500
400
300
200
100

35. Normal vs. Inferior Goods
Write out inferior goods for the following normal goods:
Charmin Ultra soft toilet paper
Kellogg's Frosted Flakes
Premium gas

36. Demand vs. Quantity Demanded
Demand = How much people want at different prices.
The entire Demand Curve. (Many points)
Quantity Demanded = How much of a product is demanded at one particular price.
Just one point on the demand curve.

37. 600
500
400
300
200
100

38. A Change in price of a good leads to a change in quantity demanded
(Movement along the curve)

39. A change in income, preferences, or changes regarding alternative goods leads to a change in demand.
Shift of the Curve

40. Discuss with a partner A shifting curve shows a ________ in demand.
What is an inferior good?
Would you expect customers to respond greater to a change in price for cereal or for electricity?

41. How did they do?

42. While you watch…
Write out three things discussed about the economy that you agreed with (on green) and three you disagreed with (on pink)during the debate.
Indicate who said it on the back of the post it.

43. Elasticity of Demand (Ed)

44. Which one is more elastic?

46. Price Elasticity of Demand
How MUCH will consumers change their demand for a good given a price change.
Sensitivity to price changes

48. Calculating Elasticity
Ed =
% change in quantity demanded
% change in price

49. Calculating Elasticity
First pick two points on the demand curve.
Then figure out the percentage change of quantity
Q1 – Q2
Q 1
X 100

50. Calculating Elasticity
Then figure out the percentage change of Price for the same two points.
P1 – P2
X 100
P 1

51. Calculating Elasticity
Lastly, divide the two numbers together, which gives you the elasticity.
Δ Q
= Elasticity
Δ P

52. Figure out Change (Δ ) in Q
Q1 – Q2
Q 1
X 100 Q1 Q2 14 12 10 8 6 4 2
40 – 70
X 100 40
Figure out Change (Δ ) in Q 40
Δ Q = 75%

53. Figure out Change (Δ ) in P
P1 – P2
P 1
X 100 Q1 Q2 14 12 10 8 6 4 2
10 – 5
X 100 10
Figure out Change (Δ ) in P 40
Δ P = 50%

54. Calculating Elasticity
Δ Q
= Ed
Δ P
75%
50%
Elasticity = 1.5

55. What does the number mean?
Inelastic: Elasticity is < 1
Elastic: Elasticity is > 1
Unitary Elastic: Elasticity = 1

56. Why would an economist care about Elasticity of demand?

57. Elastic 14 12 10 8 6 4 2 40

58. Inelastic Salt 0.1 Matches Gasoline 0.2 Natural gas Coffee 0.25
Goods
Estimated Elasticity of Demand
Salt
0.1
Matches
Gasoline
0.2
Natural gas
Coffee
0.25
Tobacco products
0.45
Automobiles, long-run

59. Inelastic 14 12 10 8 6 4 2 40

60. Unitary Elastic Movies 0.9 Housing 1.2 Private education 1.1
Goods
Estimated Elasticity of Demand
Movies
0.9
Housing
1.2
Private education
1.1
Tires, short-run

62. Elastic Restaurant meals 2.3 Foreign travel 4.0 Fresh green peas 2.8
Goods
Estimated Elasticity of Demand
Restaurant meals
2.3
Foreign travel
4.0
Fresh green peas
2.8
Chevrolet automobiles
Fresh tomatoes
4.6

63. Elastic or Inelastic 14 12 10 8 6 4 2 40

64. Let’s see it in action… Scenarios 1 - 4
Complete the demand schedules on the worksheet individually for each scenario.

65. Do ALL 4 scenarios Individual Quantities Market Quantities
Individual Quantities
Market Quantities
Can of Coke =$1
Snickers Bar =$1
Twinkie =$1
Carton of Milk =$1

66. Create a Market Demand Curve
As an Economist, you are interested in how these various factors impact the Market Demand for these products. Therefore, you need to develop a market demand curve.
Determine the "Market Quantities" for situation 1 and situation 2 only… This means add up the quantities from everyone in the group and put it in the Market Demand Schedules.

67. For situations 1 and 2 Individual Quantities Market Quantities
Individual Quantities
Market Quantities
Can of Coke =$1
Snickers Bar =$1
Twinkie =$1
Carton of Milk =$1

68. What is the Elasticity of snickers?

69. What factors effect Elasticity?

70. Relative Importance Price of the good % of your budget
Expensive = Elastic
Inexpensive = Inelastic

71. Loyalty to a brand
If you like a certain brand you will likely purchase it even at the higher price.
High Loyalty = Inelastic

72. Availability of Substitutes
If there are a large amount of other brands = elastic.
If there aren’t many substitutes = inelastic.

73. Necessity vs. Luxury
Luxury = Elastic
Necessity = inelastic

74. Time Horizon
It takes people time to adjust to price changes. (Finding another alternative to your previous buying habits)
Short term = inelastic
Long term = elastic
Computer example

75. Total Revenue
The amount of money a company receives by selling its goods. (Not to be confused with profit)
Equation can be written as:
TR = P· Q

76. TR = P· Q TR = 10· 40 TR = $400 Price Quantity 14 12 8 6 4 2 40
Quantity

77. Revenue Table 14 12 10 8 6 4 2 Price of Quantity Demanded
Total Revenue 14 12 10 8 6 4 2

78. 14 12 10 8 6 4 2
Price 40
Quantity

79. Revenue Table
Price of
Quantity Demanded
Total Revenue 14 17
238 12 28
336 10 40
400 8 51
408 6 62
372 4 74
296 2 86
172

80. Revenue Table
Price of
Quantity Demanded
Total Revenue
Δ Total Revenue 14 17
238
(98) 12 28
336
(64) 10 40
400 8 51
408 36 6 62
372 76 4 74
296
124 2 86
172