1. Chapters 4, 5, 6-Understanding Supply and Demand or Why they sell more surfboards in California than Nebraska …..
Students will define and/or identify the following:
Demand
Law of Demand
Diminishing Marginal Utility
Substitution Effect
Real Income Effect
Demand Schedule, Market Demand Schedule
Demand Graph

2. How do we decide what to buy?
What factors go into your decision to buy something?
Demand is the desire or willingness to own something-AND
the ability to pay for it.

3. Why do we purchase more when stores have a BIG Sale?

4. Look at this demand curve.
What happens to quantity demanded as prices rise?

5. The Law of Demand
The law of demand states that consumers buy more of a good when its price decreases.
Conversely, consumers buy less of a good when its price increases.
Demand and price have an opposite or inverse relationship. $ D

6. 3 Factors that influence how much of an item people will buy at a particular price, thus impacting the law of demand:
Diminishing marginal utility B. Real Income Effect C. Substitution Effect
Diminishing marginal utility-utility is the power that a good or service has to satisfy a want.
The law of diminishing marginal utility is an economic rule stating: the additional satisfaction people get from consuming one more unit of a product will lessen with each additional unit they consume.
Consuming one candy bar may satisfy a person’s sweet tooth.  If a second candy bar is consumed, the satisfaction of eating that second bar will be less than the satisfaction gained from eating the first. If a third is eaten, the satisfaction will be even less.

7. B. Real Income Effect is the inability to buy the same quantity of goods when the prices rise but income does not. It is the change in consumption(DEMAND) resulting from a change in income.
In other words, when prices rise, your money buys less. Higher prices reduce your purchasing power.
Real income effect can also happen in reverse-if you receive an increase in income, and the prices of goods and services remains the same, you have an increase in purchasing power
Real income effect affects quantity demanded.

8. C. Substitution Effect-the ability of similar items to satisfy the same need. If two items can satisfy the same need, and the price of one of the items goes up relative to the price of the other, people will substitute the lower priced item. This is known as the substitution effect.
When the price of Dr. Pepper rises, consumers may substitute cheaper Dr. Thunder.

9. A demand schedule can easily be converted to a demand curve.
Demand Schedule is a table that list the quantity of a good a person will buy at various prices in a market.
Demand Curve-a graphic representation of a graph schedule
A demand schedule can easily be converted to a demand curve.

10. A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at various prices.
Market demand-all consumers in a market.

11. A demand curve shows the quantity demanded of a good or service at each possible price.

12. Questions for Reflection:
Define demand.
State the law of demand. What kind of relationship exists between price and demand? Explain your answer.
List and explain the three factors that influence the Law of Demand. Provide your own examples of each.
How have lower petroleum prices impacted purchasing power? What if the prices of petroleum go up, but your income stays the same?
What is a demand schedule? Differentiate between a demand schedule and a market demand schedule.
What is a demand curve? Create a demand curve and a market demand curve using the table on slide 10. How could a business owner use this information?

13. Shifts of the Demand Curve
Ceteris Paribus
Shifts in the Demand Curve
Factors that Cause a Demand Curve to Shift
Complements

14. LeBron James 16 SB Price $200.00
While the price of a good influences a consumer’s decision to purchase a good, it is not the only factor.

15. Ceteris Paribus
Ceteris Paribus is a Latin phrase meaning that all other things are held constant.
A demand curve assumes Ceteris Paribus or that only price is changing while all other things are held constant.
In other words, a demand curve only looks at price. It does not consider other factors that influence demand.
It is important that when plotting a demand curve, the time period and quality of the goods remain constant.
Sometimes, something happens that causes demand to increase for certain items. For example, if medical research proved that taking certain vitamins eliminated your risk of developing cancer, the demand for that item would increase substantially.

16. Shifts in the Demand Curve
When a demand curve shifts, it moves.
Price can never shift a demand curve because price is in the demand curve.
To shift a demand curve, there must be a factor other than price.

17. D is the original demand curve D1 is the demand curve after it
has shifted. Notice that by shifting
to the left, demand has decreased
at every price level.

18. Here is a simple rule to remember:
If the curve shifts left, left means less. Demand has decreased at every price level.
If the curve shifts right, right means more. Demand has increased at every price level.

19. An outbreak of Mad Cow’s Disease would decrease demand for
beef at every price level.

20. Factors that Can Shift a Demand Curve:
Advertising Population Consumer Taste and Preferences Consumer Expectations about Future Prices The Price of Complements The Price of Substitutes Change in Income

21. Advertising can increase demand at
A 30-second advertisement during the 2015 Super Bowl game costs $4.5 million. That's an average of $150,000 per second. This year the ads are $5 million for 30 seconds.
Advertising can increase demand at
all price levels.

22. Changes in population-the demographics-not just the numbers, but changes within the age of the population, ethnicity & gender can also play a factor…the aging “baby boomers”
The Baby Boom generation increased demand for goods at all price levels.

23. Consumer Taste and Preferences-Fads and Fashions
These are items that may be short lived, or that stay around a long time…

24. Anticipation of a change in price. If we think the price of a popular
good will drop, we will buy less
at all price levels today and wait
for the future lower price.

25. Complements are goods purchased together.
If the price of one of the goods goes down, the demand for the other goes up.

26. Questions for Reflection:
What is the relationship between the law of demand and Ceteris Paribus?
Why can price not shift a demand curve?
What factors can shift a demand curve?
Provide an example of a complementary good.
How can the anticipated decrease in the price of a good impact the demand for that product? Give an example.
What happens when a demand curve shifts left? Right?

27. Factors Affecting Elasticity of Demand
In this lesson, students will identify characteristic of elastic and inelastic demand.
Students will be able to define and/or identify the following terms:
Elasticity
Elastic Demand
Inelastic Demand
Factors Affecting Elasticity of Demand

28. The law of demand states that consumers buy less at higher prices?
So, why do we continue to buy gas when the price is high?

29. Elasticity of Demand
Elasticity of demand is a measure of how consumers react to a change in price.
Inelastic demand is demand that is not very sensitive to a change in price.
Elastic demand is demand that is very sensitive to a change in price.

30. Economists call consumer price responsiveness-elasticity
Economists call consumer price responsiveness-elasticity. Price elasticity of demand is how much consumers respond to a given change in price. For some goods a rise or fall in price greatly affects the amount people are willing to buy.
Elastic demand occurs when the change in the price of a product greatly affects the amount of that product people are willing to buy.
Examples of goods with elastic demand are: Coffee, colas, shampoo-goods in which there are substitutes available.

31. Inelastic demand-If a price change does not result in a substantial change in the quantity demanded, that demand is inelastic.
Examples of goods with inelastic demand are: Salt, pepper, electricity, prescription medicines, gasoline-goods for which there may be no substitute.

32. Factors Affecting Elasticity of Demand
The following factors affect the elasticity of demand:
The existence and similarity of substitutes. The more substitutes that are available, the greater the elasticity of demand.
The percentage of a person’s total budget devoted to the purchase of the good. If a person spends a large amount of their budget on the item, the demand for the good becomes more elastic-example, a new car.
How much time we allow for the consumer to adjust to the change in price. Do people have a lot of time to adjust to the change in price? If they have a lot of time to adjust it changes the elasticity of demand.

33. Therefore, we deal with a price increase
It’s obvious, isn’t it? We can substitute orange juice for apple juice.
Therefore, we deal with a price increase
by substituting one product for another
product.

34. However, we cannot
substitute milk
for gasoline.

35. Price per pound Quantity Demanded
Ground beef per 1,000 pounds/mth

36. 2.49
2.39
2.29
2.19
2.09
1.99
1.89
1.79
1.69
1.59
DEMAND
CURVE
FOR
BEEF
PER
MONTH P R I C E O U N D F B
DEMAND CURVE D
QTY DEMANDED/PER 1,000 POUNDS/MONTH

37. Questions for Reflection:
State the Law of Demand.
Why is the law of demand not always true?
Define elasticity.
Provide one example of a good with inelastic demand and explain why demand for that good is inelastic.
Provide one example of a good with elastic demand and explain why demand for that good is elastic.

38. Chapter 5 -Understanding Supply
Or how Apple sold over 13 million iPhone 6s and 6s Plus smartphones over the launch weekend, and T-Mobile had them on back order…with a price of $649 for the 6s Plus…hmmm
But think again Batman-what is up with the I-Phone X??
Students will define and/or identify the following:
Supply
Law of Supply
Supply & Market Supply
Supply Curve
Elastic & Inelastic Supply

39. The Supply Curve-The law of demand alone is not enough to explain what determines price. We must also look at supply. E. 11-Supply is the willingness and ability of producers to provide goods and services at different prices in the marketplace.
The Law of Supply states, as the price of a good rises, the quantity supplied rises. As the price of a good falls, quantity supplied falls.

40. Price of Red Noses w/Glasses $2.00
Quantity Supplied 100
Quantity Supplied 200
Quantity Supplied 300
Quantity Supplied 400
Price of Red Noses w/Glasses $3.00
Price of Red Noses w/Glasses $4.00
Price of Red Noses w/Glasses $5.00
The Law of Supply states, as the price of a good rises, the quantity supplied rises.

41. E-15. Why is the function of profit in a market economy an incentive for entrepreneurs to accept the risks of business failure?

42. Look carefully at this graph. How does price influence supply?

43. Law of Supply
The Law of Supply is the tendency of suppliers to offer more of a good at higher prices.
Why do producers of goods and services love higher prices?
How did the O’Jays impact
the supply and demand of
polyester suits in the 70s?
The Law of Supply is the opposite
of the Law of Demand.

44. Why is the Law of Supply True?
Supply increases as price rises because existing firms will produce more to make greater profits… Or
new firms will enter the market to take advantage of the high prices. For example, the fast food industry.

45. A Supply Curve
A supply curve is a graphic representation showing the tendency of suppliers to supply more at higher prices.
A supply curve will always rise left
to right.
Why do the supply and demand
curves move in different directions?
If you were the supplier of a good
or service when would YOU produce
more when the price is high or low?

46. Supply moves in the direction of price.

47. Supply Schedule is a table that list the quantity of a good a supplier will supply at various prices in a market.
DO YOU REMEMBER THE DIFFERENCE IN DEMAND AND MARKET DEMAND???? MARKET SUPPLY WORKS THE SAME WAY AS MARKET DEMAND-IT IS THE TOTAL SUPPLIED AT EACH AVAILABLE PRICE.

48. Elasticity of Supply Like Demand, Supply can be elastic or inelastic.
In general, supply tends to be inelastic at the onset, because it takes time to increase supply.

49. Inelastic supply means an increase in price causes a smaller % change in supply. It means firms have difficulty increasing supply in response to a rise in price.
Potatoes in the short term. If the price of potatoes goes up, farmers cannot increase supply because it depends how many seeds they put in the ground in March.
Nuclear Power. It would take considerable time to increase the supply of nuclear power because you need skilled labor, and it would take a long time to build.

50. Elastic Supply
Elastic supply means an increase in price causes a bigger % change in supply. It means firms can easily increase supply in response to a change in price.
Firms operating below full capacity. If a car factory is operating at 70% capacity, then it can easily increase supply and produce more cars in response to changes in price.
Some goods are more elastic than others.

51. Questions for Reflection:
Define Supply.
Define the Law of Supply.
How does the Law of Supply differ from the Law of Demand?
Why does supply increase as prices increase?
Why does it take time to increase supply?

52. Fixed Costs Variable Costs Marginal Product of Labor
Costs of Production
Fixed Costs
Variable Costs
Marginal Product of Labor

53. A Fixed Cost
A fixed cost is a cost that does not change much no matter how much is produced.
An example of a fixed cost is rent.
Regardless of how many goods a producer sells, the rent must be paid each month. The rent does not change based on the producer’s sales.

54. A Variable Cost
A variable cost is a cost that rises or falls based on production.
An example of a variable cost is the cost of raw materials.
The more pizzas sold, the more money spent on cheese.

55. Total Costs Fixed costs + variable costs = Total costs
A producer’s total costs include his fixed costs and his variable costs.
Therefore, total costs change every month because variable costs change each month.

56. The Marginal Product of Labor
Businesses can increase output by hiring more workers.
The change in output resulting from adding one more worker is the marginal product of labor.
Thinking at the margins is deciding whether to add or subtract one additional unit.
Hiring a worker may increase production.

57. Increasing Marginal Returns
Increasing marginal returns occurs when hiring one additional worker increases production.
Ideally, hiring one additional worker will lead to greater efficiency and production.
Producers want to increase production.

58. Diminishing Marginal Returns
Diminishing marginal returns occurs when hiring one additional worker decreases production.
Think about it. If you hire too many workers, there will not be enough machines or equipment to keep everyone busy. Some workers will have nothing to do or get in the way of other workers.

59. Questions for Reflection:
What are a producer’s total costs?
How do fixed costs differ from variable costs?
Define marginal product of labor.
Define increasing marginal returns.
Why do producers try to avoid diminishing marginal returns?
What is thinking at the margins?

60. Subsidy Excise Tax Regulation
Changes in Supply
Subsidy
Excise Tax
Regulation

61. The determinants of supply:
The price of inputs-
Any change in the cost of an input will affect supply. An example of an input is a raw material.
A rise in the cost of an input will affect supply at all price levels because the good has become more expensive to produce. The supply curve will shift Left, a decrease in supply.
Conversely, a fall in the cost of an input will cause an increase in supply at all price levels. The supply curve will shift Right, an increase in supply.

62. 2. Technology-if there are improvements in technology, the supply of the good will increase-especially when the improvement in technology allows the supplier to produce the good or service for less money… Technology is the use of science to develop new products and new methods for producing and distributing goods and services.
3. Number of firms in the industry-when there is a decrease or increase in the number of firms producing the good or service, there will be either a decrease or an increase in the supply of the good or service being supplied.

63. Government policies can also affect
supply.
4.Taxes-If the government decides to increase taxes on businesses, they will not be willing to supply as much as before unless they can increase price.

64. A Subsidy
A subsidy is a government payment that supports a business or a market.
Subsidies increase supply because subsidies increase supplier’s profits.
Typically, the government provides subsidies to farmers. A farmer profits from the subsidy as well as the sale.
Farmers receive government subsidies
because farm products are cheap. Farmers would go out of business without subsidies.

65. Excise Tax
An excise tax is a government tax on the production or sale of a good.
The government places excise taxes on harmful or dangerous products.
The government places an excise tax
on cigarettes to discourage consumption.

66. Regulation
Regulation is a government intervention in the market that affects the price, quantity, and quality of a good.
An example of regulation is requiring car manufacturers to install pollution reducing devices on cars.
Regulation can reduce supply.
Government regulations require car
manufacturers to install pollution reducing
devices.

67. Shifts in Supply Curves
If the supply curve shifts left, fewer goods will be supplied at all price levels.
If a supply curve shifts right, more goods will be supplied at all price levels.
Excise taxes shift a supply curve to the left while subsidies shift a supply curve to the right.

68. When a supply curve shifts to the left,
supply is reduced at all price levels.

69. When the supply curve shifts to the right,
supply is increased at all price levels.

70. Questions for Reflection:
Why does the government place excise taxes on products and how do excise taxes affect supply?
Why does the government provide subsidies to some industries and how do subsidies affect supply?
How does regulation affect supply?
Why does a rise in the cost of an input affect supply?

71. Putting Supply and Demand Together

72. Price per pound Quantity Supplied
Ground beef per 1,000 pounds/mth

73. 2.49
2.39
2.29
2.19
2.09
1.99
1.89
1.79
1.69
1.59
SUPPLY
CURVE
FOR
BEEF
PER
MONTH P R I C E O U N D F B
SUPPLY CURVE
QTY SUPPLIED/PER 1,000 POUNDS/MONTH

74. 2.49
2.39
2.29
2.19
2.09
1.99
1.89
1.79
1.69
1.59 S
SUPPLY
And
DEMAND
CURVE
FOR
BEEF
PER
MONTH P R I C E O U N D F B
EQUILIBRIUM
PRICE D
QTY DEMANDED/SUPPLIED/PER 1,000 POUNDS/MONTH

75. The price at which the quantity demanded and the quantity supplied meet is called the equilibrium price.
A shortage occurs when demand exceeds supply.
A surplus occurs when supply exceeds demand.
Let’s look at these areas on the curve…

76. 2.49
2.39
2.29
2.19
2.09
1.99
1.89
1.79
1.69
1.59 S
SUPPLY
And
DEMAND
CURVE
FOR
BEEF
PER
MONTH P R I C E O U N D F B
SURPLUS
EQUILIBRIUM
PRICE
SHORTAGE D
QTY DEMANDED/SUPPLIED/PER 1,000 POUNDS/MONTH