1. Anything New? Review Law of Demand Worksheet Current Reading Quiz  Demand  Open Note Homework  Review Powerpoint for next class (online)  Read “Current Reading Assignment” (online)

2. Review Law of Demand

3. LAW OF DEMAND As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls Price Quantity Demanded

4. “Quantity demanded” means willing AND able to buy the good or service

5. Law of Demand can be represented in a “Demand Schedule” A Demand Schedule is a table that relates Price (the driver) to Quantity demanded (the responder) P Q d $6 8 10 12 14 This is a Demand Schedule

6. The Law of Demand can be represented graphically Price Demand Curve Quantity Why does the demand curve go “high to low”? Because when price is high, quantity demanded is low And when price is low, quantity demanded is high.

7. Determinants of Demand 1. Complimentary Goods – increase demand 2. Substitute Goods – decrease demand 3. Buyer Preferences 4. Expectations 5. Income – increase demand (except “inferior goods”) These affect our Demand Schedule and move our Demand Curve

8. Price Quantity Increase Decrease Helpful hint…I = R, D = L

9. Current Reading Demand How does this effect the … 1. Potato farmer 2. Tomato farmer 3. Owner of Carls Jr.

10. Elasticity of Demand I say “elasticity”, you think “sensitivity to price”.

11. Inelastic P Q d Elastic P Q d Law of Demand still applies

12. Elasticity Price Quantity Demand Curve, inelastic product Few substitutes Inexpensive stuff Needs Example: Medicine Demand Curve, elastic product Many substitutes Wants Example: Gatorade

13. Elasticity Price Quantity Demand Curve, inelastic product Few substitutes Inexpensive Stuff Needs Example: Medicine Demand Curve, elastic product Many substitutes Wants Example: Gatorade Price Decreases Law of Demand still applies

14. Elasticity Price Quantity Demand Curve, inelastic product Few substitutes Need Example: Medicine Demand Curve, elastic product Many substitutes Want Example: Gatorade Price Increases Law of Demand still applies

15. THREE MINUTE BREAK http://www.online-stopwatch.com/bomb- countdown/

16. The Revenue Test Revenue = Price x Quantity Measuring Elasticity

17. The Revenue Test Revenue = Price x Quantity R = P x Q

18. The Revenue Test If Price increases and Revenue increases, then the product is inelastic. If Price decreases and Revenue decreases, then the product is inelastic.

19. The Revenue Test If Price increases and Revenue increases, then the product is inelastic. If Price decreases and Revenue decreases, then the product is inelastic. A Direct Relationship!!!

20. The Revenue Test If Price increases and Revenue increases, then the product is inelastic. If Price decreases and Revenue decreases, then the product is inelastic. WHY?

21. The Revenue Test If Price increases and Revenue increases, then the product is inelastic. If Price decreases and Revenue decreases, then the product is inelastic. WHY? Because buyers are insensitive to the price change and do not purchase significantly less or more.

22. The Revenue Test …works both ways If Price decreases and Revenue increases, then the product is elastic. If Price increases and Revenue decreases, then the product is elastic. WHY? Because buyers are sensitive to the price change and purchase significantly less or more.

23. New Stuff R = P x Q If P increases but Q decreases only slightly (buyers are insensitive to the price change), then R increases.

24. New Stuff R = P x Q But if P increases and Q decreases a lot (buyers are sensitive to the price change), then R decreases.

25. How do businesses use this?

26. Businesses want to position their goods and services as inelastic. WHY?

27. How do businesses use this? Businesses want to position their goods and services as inelastic. WHY? So businesses can raise prices and increase revenue.

28. How do businesses use this? Businesses want to position their goods and services as inelastic. HOW? By creating products with … Few substitutes Considered a need Examples?

29. Interactive http://www.reffonomics.com/TRB/chapter 5/elastictytestyourknowledgea.swf

30. Worksheet

31. Quiz  Law of Demand  Open note

32. Revenue Test If Will buys 10 bottles of Gatorade at $1.00 but 8 bottles when the price is $2.00, what can we concluded about Will’s elasticity of demand? (is it elastic or inelastic?)

33. Ways to improve your grade… Print Powerpoints before class Review Power before class Pay attention Review Powerpoints / Notes right after class Review material with me at lunch, break, etc.

34. HOMEWORK