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Bellringer

Bellringer. Define demand in you own words. List 5 things that are currently in high demand. Chapter 4, Section 1. Demand. Microeconomics. part of economics that deals with behavior and decision making by small units, such as individuals and firms. Demand.

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Bellringer

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  1. Bellringer • Define demand in you own words. • List 5 things that are currently in high demand.

  2. Chapter 4, Section 1 Demand

  3. Microeconomics • part of economics that deals with behavior and decision making by small units, such as individuals and firms.

  4. Demand • Demand- The desire, ability, and willingness to buy a product.

  5. You have a desire to buy this car. You do not have the ability (enough money) to buy it. Therefore, you are not willing to go into debt for it. 2008 Toyota Highlander Hybrid Is this a demand or not?

  6. Super Bowl tickets You have enough money to pay for Super Bowl tickets You do not want to go to the Super Bowl. You are not willing to buy tickets to something you do not want to attend. Is it a demand or not?

  7. Wii You have enough money for a Wii and you really want to get one. Therefore, you are willing to buy one right now. Is it a demand or not?

  8. Demand Schedule • A listing that shows the quantity demanded at all prices that might prevail in the market at a given time. Draw this demand curve.

  9. Demand Curve • Tells the quantity that consumers will demand at each and every price.

  10. Chapter 4, Section 2 The Law of Demand

  11. PRICE D E M A N D Law of Demand • “Demand for an economic product varies inversely with its price.” • As price goes up, quantity demanded for a good goes down.

  12. Quantity Demanded • Individual points on the demand curve that show how much of a product is demanded at a particular price.

  13. Change in Quantity Demanded • Income Effect -change in qd because of a change in the consumer’s real income. • Ex: Bar of Soap • Normally $5 for 1 bar • On sale for $1/bar • Buy 5 bars

  14. Change in Quantity Demanded • Substitution Effect -the change in quantity demanded because of the change in relative price of the product • Ex: Movie • The price of a movie rental changes from $5 to $15 • The cost of going to a movie is $10 • You would go to the movie theatre and pay $5 less than renting one • Ex: Books • Paperback books are $11 • You may buy fewer books • You may buy more magazines because they only cost $4.

  15. You go to Wal-Mart planning to buy one box of CHEEZ-ITs for $5. They are on sale so you buy two. Is this an example of income effect or substitution effect?

  16. Is this an example of substitution effect or income effect? The price of On Demand movies on your DVR drops from $3.99 to $2.50. A movie from BlockBuster costs $2.99 to rent. Youchoose the On Demand movie.

  17. Change in qd is because of a change in the price of a product. Change in Demand - the entire demand curve shifts Increase – right Decrease - left Change in Demand

  18. Change in Demand

  19. Bellringer #7 • Practice sheet on change in demand

  20. Reasons for change in demand… • Income • Market Size • Consumer Tastes • Consumer Expectation • Substitute Goods • Complementary Goods

  21. Income • If a consumer’s income changes, either higher or lower, that person’s ability to buy goods and services also changes.

  22. Normal Goods- goods that consumers demand more of when their incomes rise. Inferior Goods- goods that consumers demand less of when their incomes rise. Income

  23. Market Size • If the number of consumers increases or decreases, the market size also changes, thus causing a corresponding change in demand.

  24. Consumer Tastes • When a good or service enjoys high popularity, consumers demand more of it at every price. • When a product loses popularity, consumers demand less of it.

  25. Consumer Expectations • Your expectations of the future can affect you buying habits of today.

  26. Substitute Goods • – products that can be used in place of another product.

  27. Butter P D Margarine D Substitute Goods con’t…

  28. Complementary Goods • – products related in such a way that an increase in the price of one reduces the demand for both

  29. Digital Camera P D Memory Card D Complementary Goods con’t…

  30. Complementary -Razors w/blades -Swiffer w/refills Substitute -Sweet-N-Low vs. Equal -Bayer vs. Equate Complementary and Substitute Goods…Other Examples:

  31. Practice sheet on compliments and substitutes

  32. Elasticity of Demand

  33. Demand Elasticity • Demand Elasticity – the extent to which changes in price cause changes in quantity demanded. • How much will a change in price affect the demand for a product?

  34. Elastic – when a small change in price causes a large change in quantity demanded. Inelastic – a change in price causes a relatively small change in quantity demanded. Elasticity

  35. Even if the price rose sharply, diabetics would still need the same amount that they did before. If the price were to drop, they would not need any more insulin than their required dosage. Demand remains relatively constant. Insulin Elastic or Inelastic?

  36. The price of a brand-named laptop goes down by 20%. The quantity demanded goes up 30%. Laptop Elastic or Inelastic?

  37. Elasticity con’t… • Doctors services are inelastic. • To Increase revenue – increase price. • Gas Station service is elastic • To increase revenue – decrease price

  38. Specific vs. General Market Elastic -the product a specific individual (particular gas station) sells or Inelastic -to a general product (gasoline in general).

  39. In a particular area (specific market), we might respond/buy more if the price fell to 86cents.

  40. Specific Market The demand for gasoline at a particular gas station is likely to be very elastic. If they raise prices by 10%, they would sell less. If they drop prices by 10%, people would go out of their way to buy “cheap” gas.

  41. General Market The demand in gasoline in general is inelastic. If every gas station raised prices by 10%, people would have to pay the higher price or drive less. Chances are that most people would not reduce their demand for gas by much.

  42. Governments tax inelastic goods because the increase in price does not change the quantity demanded.

  43. Determinants of Demand Elasticity • Can the purchase be delayed? Yes orNo • Is it a large proportion of income? Yes or No • Are there good substitutes? Yes or No? 2 yes=elastic 2 No=inelastic

  44. Can the purchase be delayed?

  45. Are there good substitutes?

  46. Does it take a large portion of your income?

  47. Which of the 2 is more elastic? College textbook required for a class Or A novel for fun reading

  48. Which scenario would be more elastic?

  49. Which is more elastic? • Calculator for fun or for a test?

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