1. Activator - Ch. 4 Sec 1
Three people enter a Mazda dealership all interested in buying a brand new car. All three initially stop to look at the Mazda RX8. The first person tells the salesperson that they “really like the RX8” but they “don’t have any money today”, and are “saving their money for a purchase within the next 6 months”. The second person tells the dealer that they “have the money to buy”, they “are going to ultimately buy RX8”, but they are shopping various dealerships and are “not willing to buy today”. The third person tells the dealer that they “love the RX8!”, they “have the money” and they “want to buy it today.” Answer the following questions based on the above scenario:
List each customer (1-3). Next to each customer, write each of the following that apply to their situation:
Desire to buy
Willingness to buy
Ability to buy
Which customer do think was most appealing to the salesperson, and why?
Which customer would you have helped first, and why?

2. Chapter 4 - Demand Section 1 – Understanding Demand
Demand – desire, ability, and willingness to buy a good/service
The amount of a product that a consumer (individual) or group of consumers (market) will purchase at a given price
In a market system, buyers and sellers determines the prices of goods and services
Microeconomics – The study of the economic behavior and decision making of small units, such as individuals, families, and firms (businesses)

3. Application Chart – Demand
Make a three column chart that represents 3 items that you want on one side, whether you can afford them or not in the next, and whether you are willing to buy them in the last.
Desired Items
Ability/Afford
Willingness
Demand 1. 2. 3.

4. The Law of Demand
Law of Demand –prices are lower, consumers will buy more; prices are higher, consumers will buy less.
Inverse relationship between price and the QD of a product.
Prices strongly influence the quantity demanded of a product
Price
Prices of
Products Decreases
Demand Quantity Demanded
Increases
Price Prices of
Product
Increases
Demand
Quantity Demanded Decreases

5. Change in Quantity Demanded
$3.50
$1.00

6. Change in Quantity Demanded
$3.50
$1.00

7. The Income Effect
Income Effect – the change in consumption resulting from a change in price, “more bang for your buck”
Consumers feel richer when prices drop, poorer when prices rise. Both affect the Quantity Demanded of a product.

8. The Income Effect
Purchases More Bang for your Buck

9. Substitution Effect $3.99 $4.99 $3.99
Substitution Effect – when consumers react to an increase in a good’s price by consuming less of one good and more of other goods
                                                                                                                                                                                                                             
$3.99
$4.99
$3.99

10. The Demand Schedule Price of Ice Cream Quantity Demanded $3.00 2.50 2
Demand Schedule - a table that lists the quantity of a good that a person will purchase at each price in a market
Market Demand Schedule - lists the quantity of a good that all consumers will purchase at each price in the market
Price of Ice Cream
Quantity Demanded
$3.00
2.50 2
2.00 4
1.50 6
1.00 8
.50 10
.10 12
Price of Ice Cream
Quantity Demanded
$3.00
2.50 30
2.00 50
1.50
100
1.00
200
.50
300
.10
400

11. Application - The Demand Curve
Demand Curve - graphically represents the demand schedule
Demand Curve is downward sloping because of the law of demand
Price per Ice Cream Cone
1.50
2.00
2.50
$3.00
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity Demanded of Ice-Cream Cones per week
Price
Quantity
$3.00
2.50 2
2.00 4
1.50 6
1.00 8
.50 10
.10 12

12. Chapter 4 Section 2
Plot the demand schedule below, which represents 2004 Florida Marlins avg. sales per game (in thousands)
Price per Ticket
20.00
25.00
30.00
$40.00
15.00
10.00
Quantity Demanded of Tickets
Price
2004
$40.00
35.00 4
30.00 6
25.00 8
20.00 10
15.00 12
10.00 14
Playoffs 8 10 14 16 18 22 24
Next Season 2 4 8 10 12
35.00 D3 D1 D2

13. Section 2 - Shifts of the Demand Curve
Changes in Demand are reflected as a shift in the curve
Shifts to the right indicate an increase in demand
Shifts to the left indicate a decrease in demand
Price
Increase
in demand
Decrease
in demand
Demand
curve, D 2
Demand
curve, D 1
Demand curve, D 3
Quantity Demanded

14. Difference Between A Change in Quantity Demanded and a Change in Demand
QD - A change in the amount a consumer will purchase as a result of a change in price (ceteris paribus – all other things constant)
Reflected as movement along the curve
D – A change in the amount a person will buy as a result of an outside factor (change in ceteris paribus - popularity of product, consumer income, etc.)
Reflected as a shift in the curve

15. Flow Chart – Determinants of Demand – pgs. 85 - 87
What Causes a Shift?
Consumer Income
Consumer Expectations
Population
Consumer Tastes and Advertising
Price of Related Goods
Description Consumer Income has a major influence on a consumer’s demand
Description
Description
Description
Description
Example of Increase Demand People are paid more, they buy more normal goods
Example of Increase Demand
Example of Increase Demand
Example of Increase Demand
Example of Increase Demand
Example of Decrease Demand
People are paid less they buy less normal goods and more inferior goods
Example of Decrease Demand
Example of Decrease Demand
Example of Decrease Demand
Example of Decrease Demand

16. What Causes a Shift? Consumer Income Consumer Expectations Population
Consumer Tastes and Advertising
Price of Related Products
Group Assignment (pg ): Create a scenario that represents each of the five determinants of demand.
Provide a scenario that shifts the demand curve to the right and the left.

17. Consumer Income
Consumer Income – A consumer’s income affects their demand for most goods and services
Increase in income will cause an increase in consumption
Decrease in income will cause a decrease in consumption
Normal good –
Inferior good –

18. Price of Related Goods
Price of related goods – demand for goods can be affected by the price for related goods
Complements – the demand of one good increases as a result of the purchase of another good
Substitutes – the demand for one good decreases because another good is used in its place

19. Consumer Tastes and Advertising
Consumer Tastes and Advertising – changes in popularity of products or the influence of trends and advertising can affect demand
Popularity of product decreases, decreases in demand
Popularity of a product increases, increases in demand

20. Consumer Expectations
Consumer Expectations – refers to the way people think about the future, as it relates to consumption
Expectations for the future can affect consumption for the present

21. Population
Population – an increase in the number of consumers can cause an increase or decrease in the demand for products
Increase in population, increase in demand
Decrease in population, decrease in demand

22. Demand Application – Average sales of SUV’s per month (in millions)
Plot the demand schedule below. The graph represents the demand for SUV’s during the early 1990’s. During the late 1990’s SUV’s became increasingly popular in the United States. During the mid 2000’s, gas prices increased nationally to average rates around 5.00 per gallon. Consumers expected these prices to remain in the future, which affected the demand for SUV’s around the country.
Price per SUV 20 25 30
$55 15 10
Quantity Demanded of SUVs 50 45
Price
Early 90’s
$55 50 2 45 4 40 6 35 8 30 10 25 14
Late 90’s 2 4 6 8 10 14 20
Gas Hikes 1 2 3 4 6 8 40 35

23. Demand Application – Average sales of SUV’s per month (in millions)
How did the curve change from the early 90’s to the late 90’s
What was the cause of the change from the early 90’s to the late 90’s?
What happened to the curve after the gas hikes?
Price per SUV 20 25 30
$55 15 10
Quantity Demanded of SUVs 50 45 40 35 D3 D2 D1

24. Chapter 4 Section 3
List 2 items that you would buy less of if the price increased
List 2 items that you would buy more of if the price decreased
List 2 items that you would continue to buy, even if the increased

25. Section 3 – Elasticity of Demand
Elasticity of Demand –how consumers will cut back or increase their quantity demanded for a product when prices rise or fall
Measures the extent to which changes in price causes changes in quantity demanded.
Helps determine how much a price change will influence the qd of any given product

26. Elastic Demand
Elastic – consumption changes drastically when a price rises or falls
A consumer is very responsive to price changes

27. Inelastic Demand
Inelastic - changes in price causes a relatively small change in quantity demanded
Consumers continue to purchase regardless of price change

28. Determinants of Demand Elasticity
Availability of Close Substitutes
Pepsi/Coke, Butter/Margarine
Relative Importance
How much you spend on a good
Table salt versus designer clothes
Necessities versus Luxuries
Medicine versus a luxury automobile
Change over time
Longer time horizon – more elastic
Gas in the short run is inelastic, but over time elastic

29. Values of Elasticity Elasticity has a precise mathematical definition
Percentage change in quantity demanded
Percentage change in price
Value is less than 1, it is considered inelastic.
Inelastic – Demand is < 1
Value is greater than one, demand is elastic.
Elastic – Demand is > than 1
Value is equal to one, demand is unitary elastic.
Unitary Elastic – Demand is = 1

30. The Midpoint Method
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Price Elasticity =
Price
8.00
$10.00
8 10
Quantity A
10 – 8_ 9
= .22
$10 – 8_ $9
= .22
B A B
22%
= 1
Unitary Elastic
A B
10 – 8__ 9
= .22
$10 – 8 9
= .22
.22
= 1
Unitary Elastic

31. Application – Elasticity of Ice Cream Cones
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Price Elasticity =
Price
3.00
5.00
6.00
$7.00
2.00
1.00
Quantity Demanded of Ice-Cream Cones per week
(Q2 – Q1) / [(Q2+Q1) / 2]
20 – 10 15
= .67
$4 – 3
$3.5
= .29
(P2 – P1) / [(P2 + P1) / 2]
.67_
.29
= 2.3
% change in qd
% change in price
4.00
Elastic

32. Application – Elasticity of Table Salt
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Price Elasticity =
Price
3.00
5.00
6.00
$7.00
2.00
1.00
Quantity Demanded of Table Salt
15 – 10
12.5
= .40
(Q2 – Q1) / [(Q2+Q1) / 2]
$6 – 2 $4
= 1
(P2 – P1) / [(P2 + P1) / 2]
= .4
% change in qd
% change in price
4.00
Inelastic

33. Price of a slice of pizza
Total Revenue
Total Revenue – the amount paid by buyers and received by sellers of a good
Price of the goods x quantity demanded = Total Revenue
Price of a slice of pizza
Quantity Demanded
Per day
Total Revenue
$.50
300
150
$1.00
250
$1.50
200
$2.00
135
270
$2.50
100
$3.00 50

34. Elasticity Application 1
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Use the formula to show how you determine elasticity of demand for the graph.
Q2 _______ - Q1_______ = ______ / Q2 ______+ Q1 _______ / 2 = _______ = ________
P2 _______ - P1_______ = ______ / P2 ______+ P1 _______ / 2 = _______ = ________
- Elasticity QD______ P______P = ________
Did the price change cause an elastic or inelastic response in the QD for ice cream cones? ________________________________________________
Elastic

35. Elasticity Application 2
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Use the formula to show how you determine elasticity of demand for the graph.
Q2 _______ - Q1_______ = ______ / Q2 ______+ Q1 _______ / 2 = _______ = ________
P2 _______ - P1_______ = ______ / P2 ______+ P1 _______ / 2 = _______ = ________
- Elasticity QD______ P______P = ________
Did the price change cause an elastic or inelastic response in the QD for insulin? ________________________________________________
Inelastic

36. Elasticity Application 3
Scenario: The Apple store in St. John’s Mall made the decision to drop the price of their Ipod Nano from $150 to $125. As a result, the sale of Nano’s increased from 200 a week to Create a Demand Schedule and Curve based on the above information.
Price Per Ipod Nano
Price of Nanos
QD per week
150
125
150
125
200
250 QD
Use the formula to show how you determine elasticity of demand for the graph.
Q2 _______ - Q1_______ = ______ / Q2 ______+ Q1 _______ / 2 = _______ = ________
P2 _______ - P1_______ = ______ / P2 ______+ P1 _______ / 2 = _______ = ________
- Elasticity QD______ P______P = ________
Elastic
2. Did the price change cause an elastic or inelastic response in the QD for Nano’s? ___________________
3. If the firm drops their price by _________%, they will see an increase in sales of __________%
4. To determine if this is a good decision for the firm, calculate the total revenue of each price:
- Multiply the first price of the Nano by the first QD – $______ x _______ = ___________________
- Multiply the second price of the Nano by the second QD – $ ______ x _______ = __________________
5. Which price point generates the most total revenue? ______________________
$30,000
$31250
125

37. .18
What is the price elasticity of demand when the price changes from $1 to $2? _________ *Use the midpoint method formula to determine the answer to #1*
Q2 – Q1__ ________ (Q2 + Q1)/ = ________________ = ___________ P2 – P1__ ________ (P2 + P1)/2 20
170
.12 1
.67
1.5
Based on the above result, demand for Moonbucks coffee at this price range is (elastic/unit elastic/inelastic)

38. 1.22
What is the price elasticity of demand when the price changes from $5 to $6? _________ *Use the midpoint method formula to determine the answer to #1*
Q2 – Q1__ ________ (Q2 + Q1)/ = ________________ = ___________ P2 – P1__ ________ (P2 + P1)/2 20 90
.22 1
.18
5.5
Based on the above result, demand for Moonbucks coffee at this price range is (elastic/unit elastic/inelastic)

39. The Midpoint Method
(Q2 – Q1) / [(Q2+Q1) / 2] (P2 – P1) / [(P2 + P1) / 2]
Price Elasticity =
Price
8.00
$10.00
8 10
Quantity A
10 – 8_ 9
= .22
$10 – 8_ $9
= .22
B A B
22%
= 1
Unitary Elastic
A B
10 – 8__ 9
= .22
$10 – 8 9
= .22
.22
= 1
Unitary Elastic

40. The Flaw in Point Elasticity of Demand
Elasticity = Percentage change in Quantity Demanded/Percentage change in Price
% Q % P
Price
8.00
$10.00
8 10
Quantity A
10 – 8 X 100 10
= 20%
$8 – 10 X100 $8
= 25%
B A B
20%
25%
= .8
Inelastic
A B
8 – X 100 8
= 25%
$10 – 8 X100
$10
= 20%
25%
20%
= 1.25
Elastic

41. Determinants of Demand Elasticity
Can The Purchase Be Delayed?
Insulin, gas, cigarettes, etc…
2. Are Adequate Substitutes Available?
Pepsi/Coke, Steaks/Chicken, etc…
3. Does the Purchase Use a Large Portion of Income?
Table Salt vs. Automobiles
Determinants of Elasticity
Brand New BMW
Gasoline
Insulin
Can the purchase be delayed ?
Yes No
Are adequate substitutes available?
Does the purchase use a large portion of income?
Type of Elasticity
Elastic
Inelastic

42. Law of Diminishing Marginal Utility
Diminishing Marginal Utility – a decrease in the (utility) usefulness due to the reduced satisfaction of a product.
Utility – usefulness of a good/service to a consumer.

43. Law of Diminishing Marginal Utility
Buy 1 pair
get 2nd ½ price

44. Do Now – Ch. 5 Sec 1
Following graduation, Braden McElroy opens a smoothie shop called, . Initially, he needs to determine the products that he wishes to sell at the shop. He decides that he will offer 5 main types of smoothies on his menu
Braden’s Berry Blastoff
Braden’s Banana Bonanza
St. Simon’s Succulent Strawberries
Brunswick’s Blueberry Lagoon
Mocha Marsh Surprise
During the first month of operation he offered all of his smoothies at He found that people were willing to purchase “Braden’s Berry Blastoff”, “Braden’s Bananza Bonanza” and “St. Simon’s Succelent Strawberries”. Ultimately, Mocha Marsh Surprise sold very little, and he could barely keep “Brunswick’s Blueberry Lagoon in stock.
What should Braden do with the price of #’s 1, 2, and 3?
What should he do with the price of #4?
What might he do with number 5?

45. Application – Revenue Table
Revune – amount of money a company receives by selling its goods
Price of the goods x quantity demanded = Total Revenue
Price of a slice of pizza
Quantity Demanded
Per day
Total Revenue
Increase/Decrease Total Revenue
$.50
300 NA
$1.00
250
$1.50
200
$2.00
135
$2.50
100
$3.00 50

46. Application – Revenue Table
Revune – amount of money a company receives by selling its goods
Price of the goods x quantity demanded = Total Revenue
Price of a slice of pizza
Quantity Demanded
Per day
Total Revenue
Increase/Decrease Total Revenue
$.50
300
$150 NA
$1.00
250
$250
Increase
$1.50
200
$300
$2.00
135
$270
Decrease
$2.50
100
$3.00 50