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Unit 2 Supply and demand
4. 1 What is Demand? • Describe the concept of demand. w Explain how demand utility are related.
Complete: pg 89 Characteristics of Demand
Characteristics of DEMAND Desire Ability Willingness to buy goods.
What is Demand? • MICROECONOMICS!!! • The area of economics that deals w/ behavior and decision making by individuals and firms. • Demand • is the desire, ability, and willingness to buy a product. • Individual demand curve • illustrates now the quantity that a person will demand varies depending on the price of a good or service.
The Law of Demand w The Law of Demand states that the quantity demanded of a good or service varies inversely with its price. – When price goes up, the quantity demanded goes down; when price goes down, the quantity demanded goes up.
Demand Marginal Utility • UTILITY= USEFULNESS or SATISFACTION! • Marginal utility • is the extra usefulness or satisfaction a person receives from getting or using one more unit of a product. • The principle of diminishing marginal utility • states that the satisfaction we gain from buying a product lessens as we buy more of the same product.
4/29 w. Review for QUIZ
Quiz w 1) _____ is the desire, ability, and willingness to buy a product. w 2) _____ states that the quantity demanded of a good or service varies inversely with its price. w 3) ____ is the usefulness or satisfaction one gets from a product. w 4) _____ is the extra usefulness! w 5) ______ is when satisfaction decreases.
Project: Due 11/27 w In your groups: Write up a list of at least 15 questions to ask store managers about the effect that sales prices have on consumer demand. w 1 person conduct an interview using your questions. w Make sure you ID the store and manager interviewed!!
Changes in Demand w Explain what causes a change in quantity demanded. w Describe the factors that could cause a change in demand.
What would happen? w A disease destroys much of the coffee crop in South America. – How might this affect the price of coffee? – The demand for substitute products? – The demand for complementary products?
4. 2 Change in Quantity Demanded w The change in quantity demanded shows a change in the amount of the product purchased when there is a change in price. w Income effect – means that as prices drop, consumers are left with extra real income.
Change in Demand w A change in demand – is when people buy different amounts of the product at the same prices. – can be caused by a change in income, tastes, a price change in a related product (either because it is a substitute or complement), consumer expectations, and the number of buyers.
Consumer Tastes w Why do tastes change? w The more popular a product is the more we WANT!! – EX> Touch screen phones, i. Pods, fuel efficient cars w However, if we get tired of it, we buy less.
substitutes • Substitution effect • means that price can cause consumers to substitute one product with another similar but cheaper item. w Prices for substitutes go up and down together. w NAME some substitute products!
Complements w Goods that are related…. . You one in order to have the other. w NAME some products that complement each other!
Change in Consumer Expectations w If a new product comes out, we buy less of the original product. w EXAMPLES:
Assignment w Complete Q’s 3, 4, 5 on pg 93 – Q’s 1 -2 on page 94 – Q’s 3, 4, 5 on page 99
4. 3 Demand Elasticity – Understand the factors that determine demand elasticity.
Change in Price Effect
Change in Price Effect: Greater change in demand Effect: Lesser change in demand Effect: Proportional change in demand
Demand Elasticity Ø Elasticity measures how sensitive consumers are to price changes. Ø Demand is elastic when a change in price causes a large change in demand. Ø Demand is inelastic when a change in price causes a small change in demand. Ø Demand is unit elastic when a change in price causes a proportional change in demand.
The Total Expenditures Test • Price X quantity demanded = total expenditures. • If the change in price and expenditures move in opposite directions on the curve, the demand is elastic, if they move in the same direction, the demand is inelastic; if there is no change in expenditures, demand is unit elastic.
Determinants of Demand Elasticity • Demand is elastic if the answer to the following questions are “yes”. – Can the purchase be delayed? Some purchases cannot be delayed, regardless of price changes. – Are adequate substitutes available? Price changes can cause consumers to substitute on product for a similar product. – Does the purchase use a large portion of income? Demand elasticity can increase when a product commands a large portion of a consumer’s income.
Scenario w You own a restaurant that is fully booked on the weekends. In midweek, however, you rarely have enough bookings to stay open. To make more money during this slow period, you decide to cut dinner prices by 1/3. From $15 to $10 on Wednesdays and Thursdays. – Do you think this will increase your revenue? Explain in detail!
4/30 w Complete all questions on page 110 – TEST FINISHERS SEE ME!
ECO JEWELERY w String= $. 50 w Regular Round Beads = $1. 00 w Elongated Beads= $2. 00 w Shaped Beads = $3. 00 w Cube Beads = $3. 00 w Gold Beads = $4. 00
5. 1 Law of Supply • Specify the reasons for a change in supply.
Demand/Supply Difference 1 Difference 2 Difference 3
What is Supply? w The amount of a product that would be offered for sale at all possible prices. w THE LAW: Suppliers will normally offer more for sale at higher prices and less at lower prices! – Doing what is best for the seller!! – MONEY!!!!
Change in Quantity Supplied • A change in quantity supplied is the change in amount offered for sale in response to a change in price. • A change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market. – the cost of inputs; productivity levels; technology; taxes or the level of subsidies; expectations; and government regulations
Changes w Cost of imputs can cause a change in Supply w Productivity: How much can be produced? w Technology: New machines can increase productivity. w Gov’t: pays subsidies to increase or decrease production.
Elasticity of Supply w Supply is elastic when a small increase in price leads to a larger increase in output— and supply. w Supply is inelastic when a small increase in price cause little change in supply. w Supply is unit elastic when in price causes a proportional change in supply.
w Q: What is the difference between demand elasticity and supply elasticity? w A: Both measure the way quantity (whether bought or produced) adjusts to a change in price.
Quiz over 4. 2, 4. 3, and 5. 1 w 1) Name 3 things that can change the quantity of supply. w 2) What is the definition of supply? w 3) The _____ effect means that as prices drop, consumers are left with extra real income. • 4) The ______ effect means that price can cause consumers to substitute one product with another similar but cheaper item. • BONUS: What is the title of Robert Downey Jr. ’s new movie?
6. 0 Price • the monetary value of a product as established by supply and demand–is a signal that helps us make our economic decisions. • provide incentives to buyers and sellers. • High prices are signals for producers to produce more and for buyers to buy less. Low prices are signals for producers to produce less and for buyers to buy more.
Characteristics w Prices are the result of competition between buyer and seller w Prices are flexible w Prices are straight forward w Prices are a system: Link all markets! – EX> Gas goes up= SUV sales go down!
Price Adjust • Price adjustments help a competitive market reach market equilibrium, with fairly equal supply and demand. • Buyers want? • Sellers want?
Market Equlibrium w Prices are stable and quantity supplied and demanded are equal
Hmmm w At the end of spring, the manager of a clothing store notices that the stockroom is stacked with sweaters that are $80. He decides to mark the sweaters 45% off. – HOW much are the sweaters now?
Equilibrium Surplus: Q supplied is greater than Q demanded
Shortage: Q supplied is less than Q demanded.
Equilibrium Price: Price that clears the market w/ no shortages and no surpluses
• A change in price is normally the result of a change in supply, a change in demand, or both.
The Competitive Price Theory w Theory of Competitive Pricing represents a set of ideal conditions and outcomes; it is the MODEL w Competition keeps costs low
Chapter 6 quiz 1) _____ acts a signal for the buyer and seller. 2) _______ is when the government decides everyone’s “fair share. ” 3) _____ is when there neither a shortage or surplus. 4) ____ is when Q>D. 5) ____ is when D>Q.
READ pages 150 -154 w Await further instructions… w ID People or firms who benefit or suffer because of these policies. Pick a group leader to discuss effects of each.
Up or Down w Price ceiling vs. Price Floor w PC= Maximum price that can be charged • Rent w PF=Lowest price that be paid for a good or service. • Minimum Wage w Target Price= a price floor farm products w Talking Market: – Markets “talk” when prices move up or down dramatically.
7. 1 Competition Structures • Explain the characteristics of perfect competition. • Identify several types of monopolies. • Assignment: Read pg 177 and answer Q’s 1 -2
Perfect Competition ü When a large number of buyers and sellers exchange identical products under five conditions. ü Large number of buyers and sellers. ü Buyers and sellers should act independently. ü The products should be identical. ü Buyers and sellers should be well-informed. ü Buyers and sellers should be free to enter, conduct, or get out of business. w Imperfect Competition: Monopolies, Oligopolies
Monopolistic Competition • Meets all conditions of perfect competition except for NO identical products. • A PC is to a PC is another PC • Athletic shoes • Use of advertising, giveaways, or other promotional campaigns to differentiate their products from similar products in the market. (NON-PRICE) • How to make them more appealing!
Oligopoly w Market structure in which a few very large sellers dominate the industry. – EX> Auto Industry w Free Trade w Price Wars • 2 forms of collusion include: • price-fixing • dividing up the market for guaranteed sales.
Monopoly w A market structure with only one seller of a particular product. w Natural monopoly – Electric Power Co w Geographic monopoly – Cable/Phone w Technological monopoly – Microsoft/Apple w Government monopoly
7. 2 Market Structure w List the problems caused by inadequate competition.
Inadequate Competition w Mergers and acquisitions can lead to several consequences: w Inefficient resource allocation – CEO Bonuses w Reduced output • Resource immobility occurs when land, capital, labor, and entrepreneurs stay within a market • Empty buildings and plans • Externalities are unintended side effects that either benefit or harm a third party. • Public goods are products everyone consumes.
Assignment w Pg 171 Q’s 3 -6 w Pg 176 Q’s 3 -6 w Pg 183 Q’s 3 -6
Chapter 7 Review: w Pg 186: Reviewing Key Terms & Reviewing Facts
BONUS PROJECT w Which soda has the monopoly in the area? w Research the availability of Coke and Pepsi in local restaurants, movie theaters, and public vending machines in the Orangeburg area. – Type up your findings. Include name, location, and brand of sodas found.