1. MICROECONOMICS Unit 3

2. Market  Arrangement that allows buyers and sellers to exchange things  Production side Supply Factors of production  Consumption side Demand Determinants of demand

3. Demand  Amount of a good desired at a given price in a specific time

4. Graphing  The price is always located on the vertical axis and quantity is always located on the horizontal axis.  Numbers increase as they move away from the origin. 0 0 $ Q

5. Graphing Demand  Demand Schedule  Ice Cream SundaePrice 15.00 24.50 34.00 43.50 53.00 62.50 72.00

6. Graphing Demand  Demand Curve $ Q 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 D

7. Law of Demand  Demand increases as price decreases  Demand decreases as price increases  Inverse Relationship

8. Quantity Demanded  Quantity demanded is caused by a change in price  All other factors remain the same

9. Elasticity  How sensitive a product is to a change in price  Elastic – very responsive  Inelastic – not responsive

10. Elasticity Graphed $ Q ED ID

11. Calculating Elasticity  Run over Rise % Quantity % Price PRACTICE ( = 1) Price of Gasoline up from $3.50 to $3.60 while quantity demanded down from 6000 gallons to 5900 gallons. Price of candy down from $3.00 to $2.50 while quantity demanded up from 30 bags to 40 bags. Quantity of Senior Sweats down from 305 to 300 sets while price up from $30 to $35.

12. Income Effect  The change in consumption resulting from a change in real income  Normal Good  Reacts normally or follows the law of demand  Inferior Good  Demand decreases as income increases “Great Cracker Taste Test”

13. Changes in Demand  Changes in the Determinants of Demand cause changes in Demand at every Price  Determinants of Demand Income Attitude Substitute Complement  http://nbr.com/2013/04/05/bright-ideas-getting-to-the-point/ http://nbr.com/2013/04/05/bright-ideas-getting-to-the-point/

14. Increase in Demand $ D Q D2

15. Effects of Determinants  Increase Demand  Get a raise  Popular advertisement  No substitute choices  New products to go with the original

16. Decrease in Demand $ Q DD2

17. Effects of Demand  Decrease Demand  Lose your job  Fad not popular anymore  New competitor in the market  Complement not available anymore

18. Critical Thinking  Income  Attitude  Substitute  Complement  Price D = curve shifts left or right Qd = movement is on the curve

19. Exit Slip  Use the blank half sheet of paper to make up a scenario in which demand will change over time.  Name the product  Describe the change in the market  State which determinant changed  Graph the changes on demand Don’t forget to put you name on the paper Due at the end of the period