DEMAND HOW DO ECONOMISTS STUDY THE CONCEPT OF

DEMAND HOW DO ECONOMISTS STUDY THE CONCEPT OF DEMAND?

WHAT IS DEMAND? • Write down the consumer good or services you would like to have right now. • Demand is: THE DESIRE, ABILITY AND WILLINGNESS TO BUY A PRODUCT • PRESENTED IN BOTH SCHEDULE AND GRAPH FORM

LAW OF DEMAND QUANTITY DEMANDED VARIES INVERSELY WITH PRICE GOES UP…. QD GOES DOWN PRICE GOES DOWN… QD GOES UP

WHY DO WE BUY? MARGINAL UTILITY – EXTRA SATISFACTION ONE GETS FROM ACQUIRING ONE MORE UNIT OF A PRODUCT Krispy Kreme Donuts WHAT’S THE PROBLEM?

DIMINISHING MARGINAL UTILITY – FOR ANY GOOD OR SERVICE, THE MARGINAL UTILITY DECREASES AS THE QUANTITY OF THE GOOD INCREASES CHILI POWDER OH YEAH, AND donuts http: //www. cleanvideosearch. com/medi a/action/yt/watch? video. Id=s. B 7 XFPy_b. Z M

REVIEW • 1. What three things must be present for Economists to study Demand? • 2. What is the Law of Demand? • 3. How is Demand shown? • 4. What other vocabulary did you learn today?

CHANGE IN QUANTITY DEMANDED • REFLECTED BY A MOVE ALONG THE CURVE • WHAT CAUSES IT? • Income Effect • Substitution Effect

INCOME EFFECT • CHANGE IN PRICE ALTERS CONSUMER’S REAL INCOME • PRICE GOES DOWN, I FEEL LIKE I’VE GOT MORE MONEY! http: //www. cleanvideosearch. com/ media/action/yt/watch? video. Id=Ki. D 6 Ozpv-xg

SUBSTITUTION EFFECT • PRICE OF GOOD IS RELATIVELY LESS EXPENSIVE THAN OTHER GOODS • WHEN PRICES RISE ON A GOOD, CONSUMERS WILL DEMAND LESS BECAUSE OF OTHER ALTERNATIVES

OH, THIS IS SO IMPORTANT • WHEN PRICE CHANGES, WE SEE A CHANGE IN QUANTITY DEMANDED ALONG THE CURVE • BUT WHAT CAN CAUSE A CHANGE IN DEMAND – A WHOLE NEW DEMAND CURVE?

CHANGE IN DEMAND RESULTS IN AN ENTIRE NEW CURVE PEOPLE BUY DIFFERENT AMOUNTS OF A GOOD EVEN WHEN PRICES STAY THE SAME WHY? S. E. P. T. I. C.

SUBSTITUTE GOODS CHANGE PRICES EXPECTATIONS CHANGE POPULATION CHANGES TASTES CHANGE INCOME CHANGES COMPLEMENTARY GOODS CHANGE PRICES

WRAP UP • 1. What is the difference in change in quantity demanded and change in demand? • 2. What causes a change in quantity demanded? • 3. What causes a change in demand? • You have been a beautiful audience, drive safely!

HOW IS DEMAND SEEN IN YOUR LIFE? • Name a product that you recently purchased because it was on sale. Identify one substitute and one complement for that product. What happened to your demand for the substitute good when the item you bought went on sale? (GRAPH IT). What happened to your demand for the complementary good when that item went on sale? (GRAPH IT).

DEMAND VS. QUANTITY DEMANDED Demand Description What changes it? What does it look like? Quantity Demanded

DEMAND VS. QUANTITY DEMANDED Demand Description Quantity Demanded the amount of a l. Amount of a good or service people good/service people are willing/able to buy will buy at ONE at ALL possible prices price l. It is a LINE, a series l. It is a POINT!!!! of points l

DEMAND VS. QUANTITY DEMANDED Demand What changes it? l. One of 6 determinants from SEPTIC Quantity Demanded l. ONLY PRICE!

DEMAND VS. QUANTITY DEMANDED Demand What does it look like? (Increase) Quantity Demanded Price (P) P 1 P 2 D 1 Quantity (Q) D 2 D Q 1 Q 2 Quantity

CHANGE IN DEMAND REVIEW • Give six separate scenarios that would explain why we would see a Change in Demand (SEPTIC) for iphones and state whether your scenario would be a shift to the right or a shift to the left

WHY IS UNDERSTANDING ELASTICITY OF DEMAND IMPORTANT? • The Law of Demand does not tell us how much more or less (quantity demanded) of a product people will demand as prices change.

ELASTICITY OF DEMAND • THE EXTENT TO WHICH A CHANGE IN PRICE CAUSES A CHANGE IN THE QUANTITY DEMANDED • Name a product that you would still buy regardless of price and a product that you wouldn’t buy if the price changed even if by a little.

ELASTIC DEMAND SMALL CHANGE IN PRICE CAUSES LARGE CHANGE IN QUANTITY DEMANDED “FLATTER” DEMAND CURVE EXAMPLE: NEIGHBORING GAS STATIONS (PENNY WARS)

INELASTIC DEMAND CHANGE IN PRICE CAUSES SMALLER CHANGE IN QUANTITY DEMANDED MORE VERTICAL DEMAND CURVE EXAMPLES: INSULIN, GAS AFTER KATRINA

TOTAL RECEIPTS TEST • TR = PRICE OF PRODUCT X QUANTITY SOLD • $1000 = $100 x 10 • $500 = $50 x 10

IF PRICE AND REVENUE MOVE IN OPPOSITE DIRECTIONS, IT HAS ELASTIC DEMAND IF PRICE AND REVENUE MOVE IN THE SAME DIRECTION, IT IS INELASTIC IF THERE IS NOT CHANGE IN REVENUE, IT IS CALLED UNIT ELASTIC

• PAGE 103 – FIGURE 4. 5 • Complete Elasticity Overhead Activity

WHY IS ELASTICITY IMPORTANT? 1. PRICING POLICY – GIVES PRODUCERS AN IDEA OF HOW TO CHANGE PRICES TO MAXIMIZE PROFITS 2. TELLS GOV’T WHAT TO TAX – SIN TAXES, EXCISE TAXES

REPORT: 'FAT TAX' COULD CURB NATION'S OBESITY PROBLEM 20 PERCENT TAX WOULD BE PLACED ON UNHEALTHY FOODS • • • INDIANAPOLIS -- Health experts have been trying to combat obesity in America for years and have recently suggested a new way to solve the growing problem. A new study suggests that imposing a fat tax on unhealthy food and drinks could help slim down expanding waistlines. According to reports, more than 60 percent of Americans are overweight. Under the tax, a $4 cheeseburger would cost an extra 80 cents, RTV 6's Stacia Matthews reported. Some Hoosiers found the proposed fat tax hard to swallow. "I don't think we should tax people and the way they run their lives, ” one man said. Others said a fat tax is palatable. "I'd pay 20 percent. It's worth it, ” one woman said. "I would eat a lot more healthy just to save more money. ” Researchers said a fat tax could drop obesity rates by 3. 5 percent and prevent 2, 700 heart-related deaths a year. The study also urged subsidies for healthier foods and veggies to make them more affordable. Dr. Eric Wright, who heads the Department of Public Health at the Indiana University School of Medicine, said the fat tax falls right in line with other consumer products. "We've applied tax to alcohol and tobacco and that has definitely shown through very many studies that it actually decreased use. So, the logic has been applied to fatty foods and preliminary evidence in Europe is that it’s very effective, ” Wright said. Researchers said Indiana spends $3. 5 billion a year on obesity-related medical costs. "The reality is, with two-thirds of the population being overweight or obese, that's what's driving up health care costs and you can either choose to pay now, or you can pay later, ” Wright said. Critics of the tax said people who choose to healthier foods should receive tax breaks and incentives.

ELASTICITY • HOW DO WE DETERMINE ELASTICITY? • PAGE 106 - 107

DEMAND IS ELASTIC IF THE ANSWER TO THE FOLLOWING QUESTIONS IS YES: CAN THE PURCHASE BE DELAYED? ARE THERE SUBSTITUTE GOODS? DOES THIS PURCHASE USE A LARGE PORTION OF INCOME?