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WARM UP 11/30/16

Thinking back to the documentary how is

it that agencies like OSHA fight Free


Market beliefs?
Is that a bad thing?

Happy Perpetual Youth


Day!

HHS

I can define the law of demand.


I can determine what causes shifts both

left and right in the demand curve.

BY THE END OF CLASS

HOMEWORK
Demand Practice

AGENDA
Warm-Up
The Law of Demand
Elasticity of Demand
Graph of

WHICH COSTS MORE? WHY?


1962 corvette or a 2004 corvette?
Diamonds or gravel?
Generic cereal or Cinnamon Toast Crunch?
A professional outside linebacker in the NFL for 5

years or a number one overall pick playing QB for the


LA Rams?

SUPPLY AND DEMAND


Demand the willingness and ability of

the people within a market area to


purchase particular amounts of goods
and services at a variety of prices during
a specified time period.
Supply the total amount of a good or

service available for purchase

#ECONGOALS DEMAND
I can demonstrate the efect of demand on decision-

making in the marketplace.


I can identify and explain the causes and results of shifts

in demand.
I can be able to identify factors that afect elasticity.
I can be able to define elasticity of demand.
I can be able to identify factors that afect elasticity of

demand.
I can be able to explain why firms want to know the

elasticity of demand for their products.

UNDERSTANDING DEMAND
Law of Demand: when a goods price is lower, consumers will

buy more of it. When the price is higher, consumers will buy
less of it.

Income Efect: as prices rise, the number of

goods purchased is decreased. Economists


measure consumption, not the money spent.
They measure the units purchased.

Substitution Efect:

as the price of one good rises consumers buy a substitute good.

Examples?

WHAT CAUSES IN A SHIFT IN DEMAND?


The Changes in Income:
Normal Goods: consumers demand more when

incomes increase.
Inferior Goods: an increase in income would lead
to less demand for these goods: Mac/cheese,
cereal, used cars, etc.

MORE SHIFTS IN DEMAND


Consumer expectations
Population
Consumer tastes and Advertising
Economy/outlook
Disasters/shortages/weather
Unemployment/not just a drop or rise in income
Expectation of war
Examples?

ELASTICITY OF DEMAND
Demand curves are accurate as long as there are no

changes other than price.

ELASTICITY
Elasticity of Demand: how drastically

buyers will cut back or increase their demand


for a good when the price rises or falls.
Inelastic: a demand for a good that you will keep buying

despite a price increase.

Necessities

Specialty items/strong wants or needs

Elastic: small price increase will cause you to buy much less

of the product/these consumers are very responsive to price


changes.

FACTORS AFFECTING ELASTICITY


Availability of Substitutes: No/or few substitutes you will still

buy the good.


Relative Importance: how much of your budget/income do

you already spend on various goods.


Necessities Versus Luxuries: if a good is viewed to be a

necessity the quantity purchased will not change much because


of a price increase. The good is inelastic.
Change over Time: a demand for a good may be inelastic for

a period of time until a substitute can be found.

MAKING BUSINESS DECISIONS


Question: Why would firms

want to know the elasticity of


demand of their products?
RememberElasticity of demand: how

drastically buyers will cut back or


increase their demand for a good when
the price rises or falls.

MAKING BUSINESS DECISIONS


Elasticity of Demand determines how a change in prices will

afect a firms total revenue.

Make pricing decisions that increase their total revenues

Price changes impact demand

Knowing the elasticity of demand for a product will enable a firm to more
accurately calculate the changes in revenue caused by changes in prices.

If demand for a product is elastic, raising prices can potentially result in a


decline in total revenue for a firm

If demand for a product is inelastic, raising prices has less significant impact
on revenue, and indeed raising prices will increase total revenue.

CREATE YOUR SHIFTS NOTES


SHEET

REVIEW
1.
2.
3.

4.
5.
6.
7.

What is meant by the phrase a change in the


quantity demanded?
What is meant by the phrase a change in
demand?
When there is unemployment in which direction will
the shift for normal goods move? In which direction
will the demand for inferior goods move?
When there is an increase in income what afect will
this have on normal and inferior goods?
List several reasons other than price that may cause
a shift in the demand for a particular good.
When we say that demand is elastic what do we
mean?
When we say that demand is inelastic what do we
mean?

OBJECTIVES - SUPPLY
I can be able to explain the law of supply.
I can interpret a supply graph using a supply schedule.
I can be able to explain the relationship between

elasticity of supply and time.

SUPPLY
What is the law of supply?

There is a direct relationship between the price of a product and the


supply of a product.

When the price of a product goes up, suppliers will ofer more

products for sale.

WHAT CAUSES A SHIFT IN


SUPPLY?
Existing producers will produce more product.
New producers will enter the market.
Examples?

THE SUPPLY CURVE


The supply curve has a positive slope
Demonstrates the direct relationship of price to quantity

supplied.

ELASTICITY OF SUPPLY
What is the elasticity of supply?

The measure of how quantity supplied reacts to changes in price.

Supply is sensitive to price? Elastic

Supply is not sensitive to price? Inelastic

In supply what is the key factor in elasticity?

KEY FACTOR
Time, especially for goods

Goods are usually inelastic in the short term, but elastic over time.

Supply of services are usually elastic in both the short and long
term.

Why? It is difficult to change production of goods quickly, but much


easier with services.

SUPPLY
When we talked about demand, we said that movement along

the demand curve was only subject to one variable-price.

The same is true for the law of supply.

Movement along the supply curve is subject to only one variable-price.

In shortDemand and Supply curves will move with price.

CREATE YOUR SHIFTS NOTES


SHEET

BOTH CURVES
Supply = positive slope=direct relationship

Demand = negative slope =inverse relationship

OBJECTIVES
I can be able to explain how supply and demand create

equilibrium in the marketplace.


I can be able to compare a market in equilibrium with a

market in disequilibrium.

SUPPLY AND DEMAND


Market forces

will push the


market toward
equilibrium.
What motivating

force will cause


this?
Self-Interest

SUPPLY AND DEMAND


Equilibrium Price
It is the price that equally satisfies households

and firms and at which quantity supplied and


quantity demanded are equal.

What is disequilibrium?
When quantity supplied does not equal

quantity demanded either because of


excess demand or excess supply.

DISEQUILIBRIUM
Excess demand = quantity

demanded is more than


quantity supplied
Excess supply = quantity
supplied is more than
quantity demanded

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