1. Economics Notes: Demand 11-12-14
Rank the following in order of importance when determining your demand for a good.
The price of the good
The brand the item is
How new the good is (just hit the market)
How limited the good is (how many there are)

2. Back to ECONOMICS for the next few weeks
This unit will focus on two of the MAIN concepts of Economics
SUPPLY and DEMAND
We will start today with Demand

3. Demand The desire to own something and the ability to pay for it
Economists / Companies study demand to help set prices

4. Law of Demand As Prices Increase, Demand Decreases
As Prices Decrease, Demand Increases

5. Law of Demand (example)
Would you buy a slice of pizza for lunch today and how many would you buy if it cost…
50 cents $1
$2.50 $5

6. Substitution Effect – an increase in the price of a good causes consumers to buy something else.
*an increase in the price of pizza leads to an increase in the buying of tacos
Income Effect – how a change in income can change the amount we purchase.
-rising prices make us feel poorer = can’t afford to buy as much.
-when prices decrease, we feel wealthier and thus buy more

7. Market Demand Schedule and Demand Curve (Graph)
Lists the quantity of a good that a person would buy at different prices

8. Get an Economics Book
Turn to pg. 78: What is causing the price of the CD at Andrea’s store to decrease?
Turn to pg. 80: How does the Income Effect impact consumption?
-What about the Substitution Effect?

9. Pg. 83 in book Answer 4,5,6 in notes Show me when done
Be prepared to discuss at end of class

10. Start of Class (5-10 min.)
Complete worksheet that reviews some of yesterday’s concepts on demand
Remember demand (as well as supply) are huge concepts in Economics
We must learn to really understand them

11. Notes: Shift in Demand 11-13-14
Graph out the following Market Demand Schedule

12. Shifts in Demand: How can the original demand line shift?
Demand Curve is accurate so long as the only thing that changes is the price.
Only 2 things on demand line: Price & Quantity
When we change other factors, we get a shift in the demand.
Reading the shift…
1. shift right means an increase in demand.
2. shift left means a decrease in demand.

14. What Causes the Shift
Income – some goods are wanted more when you have a higher income (normal goods) other goods are wanted less when you have a lower income (inferior goods).
Consumer Expectations – perception that there will be an increase in the future price of good can lead to an increase in demand now
Population – an increase in population leads to an increase in demand
Consumer Tastes & Advertising

15. Related Goods
Demand curve for one good can be affected by the change in demand for another good.
Complements – goods bought and used together… peanut butter and jelly.
*increase ski boot prices = decrease ski sales
Substitutes - goods used in place of each other… pen and pencil
*increase in pizza prices = increase in burger sales
Assignment: Worksheet

16. Notes: Elasticity of Demand 11-14-14
Explain the difference between goods that are considered a “necessity” (gas) and goods that are “luxuries” (steak).
-How does price effect each?

17. Elasticity of Demand How consumers react to a change in price.
Inelastic Goods – goods that you keep buying regardless of price (necessity).
Elastic Goods – goods that you buy more/less of due to price (luxuries).

18. Elastic or Inelastic (examples)
Gas
Shrimp
Clothes from Banana Republic
Medicine to heal a condition you have
Steak
Electricity (RG&E)

19. Factors Affecting Elasticity
Availability of Substitutes…medicine (generic?)
Relative Importance – how important is the good
Necessity vs. Luxury…something you always buy vs. a good that you can reduce your demand for. (water vs. steak)

20. Total Revenue = price of good x quantity sold
Total Revenue = price of good x quantity sold. (Money a company receives by selling its goods)
Inelastic Revenue
Price Increase = Revenue Increase
Price Decrease = Revenue Decrease
Elastic Revenue
Price Increase = Revenue Decrease
Price Decrease = Revenue Increase

21. What would you do with production? Price?
Notes: Supply
If you were running a company and just found out that consumers were willing to pay twice as much for your product…
What would you do with production? Price?

22. With Supply…
You have to think like a business owner (the supplier)  not the consumer (buyer)
So things might seem opposite!!!

23. Law Of Supply As Price Increases, Supply Increases
This is done to maximize profit
Higher prices = more production
As Price Decreases, Supply Decreases
This does not allow for the maximizing of profit.

24. Take a minute to explain…
How are the laws of supply and the laws of demand different from each other?

25. Example You want to start a business. Scenario A:
Pizza prices continue to rise but the cost of making the pizza remains the same.
Is it a smart investment to open a pizza shop?
Scenario B:
The price of pizza falls over the last month

26. Supply Schedule
Chart/Table that lists how much of a good a supplier will offer at different prices.
Market Supply Schedule – chart that lists how much of a good all suppliers will offer at different prices.

27. The Supply Curve
Graphs out the data (points) on the supply schedule - how does it look different than the demand curve?

28. Elasticity of Supply
Supply is inelastic in short run, but elastic in the long run.
Orange growers can not increase production quickly when prices rise…have to buy more land
Small increase in price will lead to a large increase in the supply.

29. Work Time
Complete sheet that reviews this section in the book pgs

30. Answer (paper): Review Key Terms 11-19-13
What is the Law of Demand?
What is elasticity of demand? Example?
What is inelasticity of demand? Example
What is the Law of Supply?
What is elasticity of supply? Example?
What is inelasticity of supply? Example?

31. Cost of Production (materials and labor)
Labor and Output
Marginal Production of Labor (MPL) – change in output from hiring one more worker
1. Increasing Marginal Return – MPL increases as # of workers increases
2. Decreasing Marginal Return – MPL decreases as # of workers increases
3. Negative Marginal Return – decrease in output as # of workers increases

33. Law of Diminishing Marginal Returns
Production decreases as the number of workers increases

34. Work: this room is now a factory Practice: Law of Diminishing Returns
Land (table is the factory, or land)
Labor (need a student volunteer)
Materials (construction paper; 2 scissors; 2 staplers)
Recorder (someone to record the results)
Goal: to make paper chain links w/ materials
Question: What is the right amount of workers to hire to achieve maximum production?

35. Notes: Cost of Production 11-24-14
What begins to happen to production costs? Why does this happen?
Increasing Marginal
Returns
Decreasing Marginal
Returns
Negative Marginal
Returns

36. Today: We will focus on production costs to any business

37. Production Costs
Fixed Cost – costs that do not change regardless of production.
Variable Cost – costs that increase or decrease depending on quantity produced.
Total cost = Fixed Cost + Variable Cost
Marginal Cost – cost of producing one more good. (Subtract previous total cost from current total cost.)

39. Selling Output Shutdown Decision
Marginal revenue – additional income from selling one more unit of a good
Total Revenue = marginal revenue X quantity sold
Profit = Total Revenue – Total Cost
Responding to Price Change – Increase in price leads to an increase in production to maximize profit…and visa versa
Shutdown Decision
As market price decreases, factories stay open until revenue is less than operating cost…then they shut down.
Profit decrease does not lead to a shutdown.

41. Work Time
Pg. 122 (1 – 7) in Economics book.

42. Supply and Demand Question: Are athletes paid too much?
Read pg. 121 in Economics book:
Answer Questions 1 and 2 after reading
Class Debate on the question at top

43. Notes: Shifts in Supply 11-25-14
How can government actually change your supply?
Think about:
How government influences the sale of cigarettes or alcohol
How government has helped farmers over the years

44. Supply can be shifted in 3 ways
Supply increases – supply curve shifts left
Supply decreases – supply curve shifts right
Opposite direction of a demand shift

45. Changes in Supply I. Input Costs II. Government Influence
Effects of Rising costs – increase costs leads to decrease supply
Technology- can lower costs and lead to an increase in supply at all price levels.
II. Government Influence
Subsidies – a govt payment that supports a business or industry (farms, developing industry…)
Taxes – decrease supply with an excise tax (tax production or good) - used to discourage the sale of harmful goods
Regulation – govt intervention that affects prices, quantity or quality of a good/service. (airlines, healthcare…)

46. III. Other Influences
Number of suppliers – large number of suppliers leads to a large amount of surplus
Future expectations of prices – high future prices leads to high supply in the future and low supply now (even though demand might be greatest now)
Global markets – change in another countries market can effect ours