Understanding Demand and Consumer Behavior

1. Bell work Get your Freonomy and wait for further instruction

3. When purchasing things to buy • You evaluate your… willingness to buy ability to buy

4. Video Game • $60

5. Bazbeaux’s Pizza • 15

6. King’s Island Tickets • $70

7. Private Jet • $8,000,000

8. Demand – Consumer Behavior Ms. Frey Mr. Westerfeld Mrs. Smith

9. What is Demand? • demand- the willingness to buy a good or service and the ability to pay for it. • law of demand- As prices fall… quantity demanded goes up As prices increase… quantity demanded goes down • You have $10 and want to buy some music from iTunes. If prices of songs on iTunes rose from $.99 to $3, how would your quantity demanded of songs change?

10. Cheryl’s DVD Demand Schedule • demand schedule- a table that shows how much of a good or service an individual consumer is willing and able to purchase at each price in a market. • Notice that when the price falls, the number of DVDs Cheryl will buy rises. When the price rises, the number she will buy falls. So quantity demanded and price have an inverse, or opposite relationship.

11. Demand Curve • demand curve- a graph that shows how much of a good or service an individual will buy at each price. (Displays the data from an individual demand schedule) • Avoid common mistake- downward slope does not mean that quantity is decreasing • How many DVDs will Cheryl buy when the price is $10?

12. Rafael’s DVD Market Demand Schedule • market demand schedule- shows how much of a good or service all consumers are willing and able to buy at each price in a market. • Markets behave in the same way as individual consumers. As prices fall, the quantity demanded of DVDs rises. As prices rise, the quantity demanded falls. • How did Rafael create a market demand schedule? • Surveyed customers • Reviewed sales figures to see how many DVDs he sold at each price

13. Market Demand Curve • market demand curve- shows the data found in the market demand schedule. (Shows the quantity that all consumers, or the market as a whole, are willing and able to buy at each price.) • At which price will Montclair Video Mart sell 175 DVDs? • Cheryl was unwilling to buy any DVDs at $30. Montclair Video Mart can sell 50 DVDs at that price. How do you explain the difference?

14. Create a demand schedule showing how many pizzas you would buy at the prices of $25, $20, $15, $10 and $5.

15. Law of Demand • As prices fall… quantity goes up. As prices increase… quantity demanded goes down • P Qd or P Qd • Inverse relationship between P and Q •  independent variable (P)   dependent variable (Q) • Called the “Price Effect” – Price caused consumer behavior to change…we buy more or less because of the change in price

16. Read and Take Notes on Chapter 4.2 Pgs. 106-113

18. More about Demand Curves • Law of diminishing marginal utility- the marginal benefit from using each additional unit of a good or service during a given time period tends to decline as each is used.

19. Change in Quantity Demanded • A change in quantity demanded does not shift the demand curve. The change refers to a movement along the curve itself. Each point on the curve represents a new quantity demanded. Classzone.com

20. Change in Demand • www.classzone.com

21. Changes in Demand Income, Market Size, Consumer Tastes, Consumer Expectations, Substitute Goods, Complimentary Goods • Change in demand of hotel rooms in Florida during the school year • Market Size • Change in demand of silly bands because WWFD (What Would Frey Do) bracelets have become more popular • Consumer Tastes • The price for peanut butter drops which results in the rise of demand for jelly • Complements • The prices of shorts and tank tops go on sale because the new fall clothing lines are arriving at stores • Consumer Expectations • Matt gets a raise at work so he decides to buy more normal goods and less inferior goods • Income • The price of Advil rises so people begin to buy the generic brands of ibuprofen. • Substitute Goods

22. Demand Determinants  Consumers D  Consumer Income  D  Consumer Confidence   D  Consumer Preferences   D  Prices of Related Products: Substitutes P BUTTER  D MARGARINE Complements P CAMERAS D FILM

23. D (Increase in demand)

24. D (Decrease in demand)

25. What is Elasticity of Demand? Chapter 4.3

26. Critical Thinking Does quantity demanded always fall if the price rises? List 3 goods or services that you think would remain in demand even if the price rose sharply. Why does demand for those items change very little?

27. Key Concepts • Buying habits affected by type of product and importance to consumer • Elasticity of demand- measure of how responsive consumers are to price changes • Elastic- quantity demanded changes greatly as price changes • Inelastic- quantity demanded changes little as price changes Firms must know the Price Elasticity of Demand of their product! Classzone.com

28. What determines elasticity? • Substitute goods or services • Proportion of Income • Necessity or Luxury

29. Total Revenue Test • Total revenue- amount of money company gets for selling its products • Formula: Total Revenue= P (price) X Q (quantity sold) • Total revenue test- shows total revenue from item at various prices • If total revenue rises after price drops, demand is elastic • If total revenue decreases after price drops, demand is inelastic