1. DEMAND ECON HSE11 MR. PARK ELEANOR ROOSEVELT HIGH SCHOOL

2. DO NOW Hand in extra credit if you completed. Extra Credit will not be accepted once the period begins Answer the following question 1. Definition of Capital? A. the tools, equipment used in the production of goods B. the machinery, and factories used in the production of goods C. the tools, and machinery used in the production of goods D. A and B E. B and C

3. SCARCITY  People do not and cannot have enough income and time to satisfy their every want  What you buy is limited to by both the amount of money you have, as well as the amount of time you have  Even the wealthiest person in the world does not have unlimited time

4. FACTORS OF PRODUCTION  Resources needed to produce goods and services  Land, Labor, Capital, Entrepreneurship

5. LAND  Natural resources that exist without human intervention  Actual surface land, water, fish, animals, trees, mineral deposits and other “gifts of nature”

6. LABOR  The work people do  A human resource  Any work people do to produce goods and services o Goods are tangible items that people can buy o Services are activities done for others for a fee o Doctors, web designers, hair stylists, etc.

7. CAPITAL  Manufactured goods used to make other goods an produce other services  Machines, buildings and tools used  Newly assembled goods are not considered capital unless they produce other goods and services. For example, when a car is used into a taxi to provide another service * Capital + Land + Labor  the value of all 3 factors of production increases (Uncut Diamond- land, Diamond cutter – labor, diamond-cutting machine – capital, result is a highly valuable gem)

8. ENTREPRENEURSHIP  The ability of individuals to o Start a new business o Introduce new products and processes o Improve management techniques  Initiative, Willingness to take risks  Must incur the costs of failed efforts  Approximately 30% of new businesses fail  Of the 70% that survive, only a handful become very successful

9. ECONOMIC DECISIONS Economic Decisions always involve trade-offs that have costs!  Every time I watch a football game, or play golf, there is a trade-off  The 1 hr to the golf course, 4 hrs playing, 1 hr for lunch/dinner, 1 hr to get home  7 hours devoted to the activity + gas + greens fees + golf equipment + lunch/dinner

10. TRADE OFF & OPPORTUNITY COSTS Trade-off  Exchanging one thing for another Opportunity Cost  The value of the next best alternative that had to be given up to do the action that was chosen  The value of the workday I took off in order to play golf  Congress approves money to be spent on infrastructure projects. They could have spent the money on medical research. The opportunity cost is less medical research

11. AIM What does quantity demanded mean?

12. DEMAND  The desire, ability, and willingness to buy a product  A microeconomic concept o Theory that deals with behavior and decisions made by individuals, such as people and firms  Demand only requires two variables o Price o Quantity

13. DEMAND  How many people will buy a phone if the price is $200 vs. if it was $400 o It will be determined by price and quantity  This is known as a demand schedule o The various quantities demanded of a specific product at all the prices in the market at a given time

14. DEMAND SCHEDULE

15. DEMAND CURVE

16. LAW OF DEMAND  The quantity demanded varies inversely with the price  In other words, when the price of a given good goes up, the quantity demanded goes down.  Likewise, when the price goes down, buyers have an incentive to purchase more, and so the quantity demanded goes up It is called a LAW, because as stated previously, Economics is a SOCIAL SCIENCE  It is the study of the way in which individuals behave in the face of change

17. MARKET DEMAND CURVE o Shows the quantities demanded by everyone who is interested in purchasing the aforementioned product o You would add the quantities from individual market curves and plot the prices and quantities on a separate graph. o The main difference being that a market demand curve is the demand for everyone in the market

18. MARGINAL UTILITY  The extra usefulness or additional satisfaction a person gets from acquiring or using one more unit of a product o We as consumers purchase something because it is useful and/or gives us satisfaction o As we use more and more of a product, that sense of usefulness and/or satisfaction decreases  Diminishing Marginal Utility  There is a decline in the extra satisfaction we get from using additional quantities of a specific product  If you purchase a bottle of water because you are thirsty, you will most likely get the most use or satisfaction from the first bottle. With each additional bottle of water, the amount of use or satisfaction you receive diminishes  Slice of pizza vs. 4 slices of pizza

19. CHANGE IN QUANTITY DEMANDED Income Effect The change in the quantity demanded because of a change in price that has an affect on the consumers’ real income A price drop on the new phone means that a consumer can spend less money on a new phone, and have more money to spend on another good A price increase on the phone means the consumer will have less money to spend on other goods Substitution Effect The change in the quantity demanded because of the change in the relative price of the product The price drop in the phone means the phone itself is less expensive than other goods and services like a watch or new handbag. Therefore, a consumer will spend on the phone instead of the watch or handbag.

20. CHANGE IN QUANTITY DEMANDED Income Effect + Substitution Effect This is why there is an increase in consumption when the price of the new phone continues to drop Factors change while the price remains the same People may decide to buy different amounts of a product at the same price