2. Review Chapter 2 Quiz QOD #9: What’s in a headline? Review HW Demand Shifts Reading the Headlines HW: Looking for S & D Project Pg 76 #1-6; pg 84 #2-6 Study for Demand Quiz AGENDA Thurs 2/2 & Fri 2/3

3.  Facebook files for $5 billion IPO Facebook files for $5 billion IPO  Sony sees $2.9 billion loss, new CEO warns of pain Sony sees $2.9 billion loss, new CEO warns of pain  Texas oysters may soon be back on restaurant menus Texas oysters may soon be back on restaurant menus  Consumer watchdog recalls HP fax machines Consumer watchdog recalls HP fax machines  Muhammad Ali trainer Dundee dies at 90 Muhammad Ali trainer Dundee dies at 90  McDonald’s confirms that it’s no longer using ‘pink slime’ chemical in hamburgers McDonald’s confirms that it’s no longer using ‘pink slime’ chemical in hamburgers  Sugar Should Be Regulated As Toxin, Researchers Say Sugar Should Be Regulated As Toxin, Researchers Say Identify the service/product most closely associated with each headline. Describe what you think will happen to demand of that item based on the headline.

4.  A shift to the right indicates that demand has increased.  buyers are willing and able to purchase more of a good at all price points  A shift to the left indicates that demand has decreased.  buyers are willing and able to purchase less of a good at all price points

5. Demand  thenDemand Curve shifts to the right  Demand  thenDemand Curve shifts to the left 

7.  Income  Tastes & Preferences (Consumer Attitudes)  Number of Buyers  Price of Related Goods  Price Expectation

8.  Income – as their income rises, people can buy more of any particular good  Having the ABILITY does NOT always mean having the WILLINGNESS to buy more. normal good – demand as income and vice versa (CDs, luxury cars) inferior good – demand as income (hot dogs, used cars)

9.  Tastes & Preferences (Consumer attitudes)– a change in preferences shifts the demand curve  Number of buyers – more buyers = higher demand  as more people move into an area rent prices go up

10.  Price of Related Goods – two types of related goods  substitutes – the demand for one good moves in the same direction as the price of the other (as P of coffee increases, the D of tea as a substitute will go up - explain)  complements – goods that are consumed together (as P of gas goes up, D of SUVs go down)  Price Expectations - if consumers expect the price to increase, they try to buy more now before the price rises.

11.  A change in demand refers to a shift in the demand curve.  A change in income, preferences, price of related goods, number of buyers, or price expectation can change demand.  A change in quantity demanded refers to a movement along a demand curve.  Only price of the good can directly cause a change in the quantity demanded of a good.

12.  if buyers' income changed?  if buyers' get tired of chocolate chip cookies?  if the class added more people?  if everyone had $5 extra in their pockets?  if Tiger Woods added his endorsement to chocolate chip cookies?  if buyers thought cookies enhanced popularity?  if fudge brownies became very expensive?

13.  Elasticity of demand is the relationship between the percentage change in quantity demanded and the percentage change in price expressed as a ratio

14. Elasticity of Demand = Percentage of change in QD Percentage change in Price

15.  Elastic demand is when the quantity demanded changes by a greater % than the % change in price.  Inelastic demand is when the quantity demanded changes by a smaller % than the % change in price.  Unit elastic is when the quantity demanded changes by the same % as the % change in price.

16.  elastic demand – when QD change is greater than the percentage change in price  ( QD  15% > P  10% )  ( QD  15% > P  10% )

17.  inelastic demand – when QD change is less than the percentage change in price  ( QD  5% < P  10% )  ( QD  5% < P  10% )

18.  unit-elastic demand – when QD changes by the same percentage as price  ( QD  10% = P  10% )  ( QD  10% = P  10% )

19.  Number of substitutes  the demand for goods with many substitutes likely to elastic  ex:  the demand for goods with very few or no substitutes is likely to be inelastic  ex:

20.  Luxuries v. Necessities  luxuries are goods that people feel they do not need to survive  demand is elastic  necessities are good that people feel they need to survive  demand is more likely to be inelastic

21.  Percentage of income spent on the Good  elastic – buyers are more responsive to price changes in goods when they spend a larger percentage of their income  inelastic – demand for goods on which consumers spend a small percentage of income

22.  Time  as time passes buyers have greater opportunities to change quantity demanded in response to price change

23. Total Revenue=Price of a GoodX Number of Goods Sold

24.  Case 1: Elastic Demand and Price Rise  if demand is elastic, a price rise will lead to a decline in total revenue  ex:

25.  Case 2: Elastic Demand and Price Demand  elastic demand + price decline = Total Revenue will increase

26.  Case 3: Inelastic Demand and Price Rise  Inelastic demand + price decline = total revenue  ex:

27.  any change in price will be equal to, but move in the opposite direction of, the change in quantity demanded  there will be no change in total revenue

28.  Case 4: Inelastic Demand and Price Decline  Inelastic demand + price decline = total revenue  ex:

29.  any change in price will be equal to, but move in opposite direction of, the change in quantity demanded  there will be no change in total revenue  ex:

30.  Looking for S & D Project  pg. 76 #1-6; pg 84 #2-6  Study for Demand Quiz

31.  Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National Textbook Company.