Download of Demand - Ector County ISD.

Section 2: Supply, Demand
Modules 5-9
Activity: Pearl Exchange
1
Objectives: be able to define law of demand, and how
Week 3
MLK off, the supply and demand model demonstrates the
Tuesday 17 competitive market. Be able to list the 5 key elements of
this model.
Be able to create a demand curve using a demand schedule.
• Do Now: Show your shoulder partner your notes for
section one, check theirs for annotations.
• EQ: What is the Demand model?
• Vocabulary for module 5 is on next slide
• THURSDAY TEST OVER MODULES 1-4 WILL INCLUDE
VOCABULARY, MULTIPLE CHOICE AND FREE
RESPONSE.
• ANY NOTECARDS THAT YOU ARE TURNING IN FOR
EXTRA CREDIT MUST COME IN BEFORE THE TEST. NONE
TAKEN AFTER THAT.
2
Module 5
• Vocabulary: Competitive Market, supply
and demand model, demand schedule,
quantity demanded, demand curve, law of
demand, change in demand, movement
along a demand curve, substitutes,
complements, normal and inferior good,
individual demand curve
3
QUICK CHECKON WHITE BOARD
WAIT TO REVEAL
According to economists, ‘self-interest’:
A)
is more characteristic of men than of
women.
B)
has the same meaning as selfishness.
C)
is a reality that underlies economic
behavior.
D)
is usually self-defeating, resulting in
loss to society
E) is nonexistent in communism.
4
The study of economics is primarily
concerned with:
A)
keeping private businesses from
losing money.
B)
demonstrating that capitalistic
economies are superior to socialistic
economies.
C)
choices that are made in seeking
to use scarce resources efficiently.
D)
determining the most equitable
distribution of society's output.
5
A normative statement is one that:
A)
is based on the law of averages.
B)
C)
D)
E)
applies only to microeconomics.
applies only to macroeconomics.
is based on value judgments.
is objective and is based on facts.
6
7
8
AP Exam Tips
• The Supply and Demand and in particular the
Aggregate Supply and Demand curve is the most
important graph to master. You must be able to
draw these and to interpret them in a multitude of
ways.
• The dependent variable in on the vertical Y axis
and the independent variable is on the horizontal x
axis. This is different from what you learned in
math and science. Just remember the cost goes on
the Y and the quantity on the X.
9
• A PRICE CHANGE CAUSES A CHNGE
IN THE QUANTITY DEMANDED
SHOWN BY A MOVEMENT ALONG
THE DEMAND CURVE. NON- PRICE
FACTORS CAUSE A SHIFT IN THE
DEMAND CURVE.
• WHEN SHIFTING A CURVE LEFT IS
LESS AND RIGHT IS MORE
10
Competitive Market
• A market in which there are many buyers
and sellers of the same good or service,
none of whom can influence the price at
which the good or service is sold.
• You text gives the illustration of cotton
prices in 2011-12
• Note that not all markets are competitive, w
11
You do not need to memorize or focus
on these, just get the gist that there are
different markets types
Number
Influence
of firms in over price
the
industry
Product
differentiation
Advertising
Entry into
the market
Examples
Many
None
None
None
Easy
Truck
Farming,
cotton growers
Monopolistic Many
Limited
Fair amount Fair
amount
Easy
Woman’s
clothing, Gas
Stations
Oligopoly
Few
Some
Fair amount Some
Difficult
Automotive
Monopoly
One
Extensive None
Almost
impossible
Government
regulations are
suppose to
prevent12
Utilities,
Competitive
Market
None
DEMAND DEFINED
What is Demand?
Demand is the different quantities of goods that
consumers are willing and able to buy at
different prices.
(Ex: Bill Gates is able to purchase a Ferrari, but if he
isn’t willing he has NO demand for one)
What is the Law of Demand?
The law of demand states There is an
INVERSE relationship between price and
quantity demanded
13
LAW OF DEMAND
As Price Falls…
…Quantity Demanded Rises
As Price Rises…
…Quantity Demanded Falls
Price
Quantity
Demanded
14
Example of Demand
I am willing to sell several A’s in AP
Economics. How much are you willing
and able to pay?
Price
Quantity
Demanded
Demand
Schedule
15
5 elements of the Supply and
Demand Model
• The demand curve – which slopes downward
• The supply curve – which slopes upward
• The set of factors that cause the demand curve to
shift and set of factors that causes the supply curve
to shift
• The market equilibrium (equilibrium price and
quantity)
• The way the market equilibrium changes when the
supply curve or demand curve shifts
16
Why does the Law of Demand occur?
The law of demand is the result of three
separate behavior patterns that overlap:
1.The Substitution effect
2.The Income effect
3.The Law of Diminishing Marginal
Utility
We will define and explain each…
17
Why does the Law of
Demand occur?
1. The Substitution Effect
• If the price goes up for a product,
consumers buy less of that product and
more of another substitute product (and
vice versa)
2. The Income Effect
• If the price goes down for a product, the
purchasing power increases for consumers
–This is also demonstrated when the
18
Why does the Law of Demand occur?
3. Law of Diminishing Marginal Utility
U-TIL- IT- Y
• Utility = Satisfaction
• We buy goods because we get utility from them
• The law of diminishing marginal utility states that as
you consume more units of any good, the additional
satisfaction from each additional unit will eventually
start to decrease
• In other words, the more you buy of ANY GOOD the
less satisfaction you get from each new unit.
19
Can you see the Law of Diminishing Marginal
Utility in Disneyland’s pricing strategy?
Change
N/A
$54
$33
$15
$10
$5
The Law of Diminishing Marginal Utility
21
Graphing Demand
22
The Demand Curve
• A demand curve is a graphical representation
of a demand schedule.
• The demand curve is downward sloping
showing the inverse relationship between price
(on the y-axis) and quantity demanded (on the
x-axis)
• When reading a demand curve, assume all
outside factors, such as income, are held
constant. (This is called ceteris paribus)
Let’s draw a new demand curve for
cereal…
23
GRAPHING DEMAND
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
Draw this large
in your notes
$5
4
3
2
$3
30
$2
50
1
$1
80
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
24
GRAPHING DEMAND
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
25
Where do you get the Market Demand?
Billy
Jean
Other Individuals
Market
Price Q Demd
Price Q Demd
Price Q Demd
Price Q Demd
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
1
2
3
5
7
P
0
1
2
3
5
P
$3
P
$3
Q
$3
D
2
Q
10
20
30
50
80
P
$3
D
3
9
17
25
42
68
D
25
Q
D
30
Q
27
Objectives: be able to define law of demand, and how
Week 3
MLK off, the supply and demand model demonstrates the
Tuesday 17 competitive market. Be able to list the 5 key elements of
this model.
Be able to create a demand curve using a demand schedule.
• Do Now: Show your shoulder partner your notes for
section one, check theirs for annotations.
• EQ: What is the Demand model?
• Vocabulary for module 5 is on next slide
• THURSDAY TEST OVER MODULES 1-4 WILL INCLUDE
VOCABULARY, MULTIPLE CHOICE AND FREE
RESPONSE.
• ANY NOTECARDS THAT YOU ARE TURNING IN FOR
EXTRA CREDIT MUST COME IN BEFORE THE TEST. NONE
TAKEN AFTER THAT.
28
Wednesday
• Objective: Be able to match vocabulary terms to
illustrations
• Verbalize in your group what the terms mean and
how the pictures illustrate a characteristic of the
meanings.
• Do Now: verify that you have the terms and notes
for modules 1-4. Identify 2 questions that you
have on the notes and would like clarified. Ask
your shoulder partner.
• EQ: What is the basic concept of economics? Do
I understand the terms?
29
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21
1
5
1.The total opportunity cost of moving from combination E to B is
A) 3 units of Capital Goods
B) 9 units of Consumer Goods
C) 10 units of Consumer goods
D) There is no opportunity cost
. . total output of 3 units of capital goods and 4 units of consumer
2
goods:
A)is irrelevant because it is unattainable under normal
circumstances.
B)will result in the maximum rate of growth
C)would involve an inefficient use of resources.
D)is unobtainable in this economy.
63. A production possibilities curve shows:
A)that resources are unlimited.
B) that people prefer one of the goods more than the other
C)the maximum amounts of two goods that can be
produced assuming the full employment of resources
D)combinations of capital and labor necessary to produce
specific levels of output.
64. Which of the following will NOT produce an outward
shift of the production possibilities curve?
A)an upgrading of the quality of a nation's human
resources
B)the reduction of unemployment
C)an increase in the quantity of a society's labor force
D)the improvement of a society's technological
knowledge
65. Other things equal, this economy will achieve the most
rapid rate of growth if:
A)the ratio of capital to consumer goods is minimized.
B)it chooses point C.
C)it chooses point B.
D)it chooses point A.
E)it chooses point D.
66. Which point(s) demonstrates
productive efficiency?
A) Point B
B) Point E
C) Points A and B
D) Points A, B, and C
E) Points D
Activity
• In small groups of 2-4
• Take a set of vocabulary terms and pictures
• Match the terms with the pictures and
discuss why you chose that one over the
others
• Show your matches to another group and
share thoughts- adjust as needed.
Labor force, normative, 4 payments on resources
Closing on Wednesday
• Which terms gave you the most trouble? HAVE YOU
WORKED THROUGH THE PROBLEMS AT THE END
OF EACH MODULE AND READ THE REVIEW FOR
SECTION 1 PGS 32-35
• REMEMBER THE 1ST TEST IS TOMORROW. 36
MULTIPLE CHOICE QUESTIONS AND 14
MATCHING
• REVIEW THE QUESTIONS AT THE END OF THE
MODULES (1-4) AND SECTION 1 REVIEW. BE ABLE
TO CALCULATE COMPARATIVE AND KNOW THE
TERMS.
Thursday TEST
• Objective: be able to read the test and determine the
correct answer for each question.
• To read the test and comprehend the terms so that
you can deduce the correct answer.
• Do Now: Write your name and period on the scan
tran- blue side one. Clear everything off desk. Turn
off all phones. If I hear any phones or see any out
this period it will be a zero. If you finish early you
may sit quietly, or read a book. NO PHONES
UNTIL ALL TEST ARE IN.
CLOSING THURSDAY-
YOU CAN COME IN FOR CORRECTIONS ON :
FRIDAY MORNING 7:15-8:30 UNLESS YOU
HAVE ZERO HOUR.
FRIDAY 4TH PERIOD,
MON BEFORE SCHOOL,(NOT IF YOU ARE IN
ZERO) 4TH PERIOD AND AFTER SCHOOL.
TUESDAY SAME.
NO CORRECTIONS AFTER TUESDAY
(if you let me know you can meet me during 8th
period to make corrections.)
Friday
• Objective: be able to explain the change in demand and
change in quantity demanded. Be able to list 5 factors
that shift the demand curve. TRIBE
• Be able to express the minute difference in how the
wording is used with change and be able to state if it is
a movement or a shift.
• Do Now: look over your notes from Wednesday and
summarize- explain something you really feel you
understand to your shoulder partner.
• EQ: What is the difference between change in demand
and change in qty demanded?
Can you see the Law of Diminishing Marginal
Utility in Disneyland’s pricing strategy?
Change
N/A
$54
$33
$15
$10
$5
Where do you get the Market Demand?
Billy
Jean
Other Individuals
Market
Price Q Demd
Price Q Demd
Price Q Demd
Price Q Demd
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
$5
$4
$3
$2
$1
1
2
3
5
7
P
0
1
2
3
5
P
$3
P
$3
Q
$3
D
2
Q
10
20
30
50
80
P
$3
D
3
9
17
25
42
68
D
25
Q
D
30
Q
Shifts in Demand
CHANGES IN DEMAND
• Ceteris paribus-“all other things held constant.”
• When the ceteris paribus assumption is
dropped, movement no longer occurs along the
Changes
in
price
demand curve. Rather, the entire demand
curve shifts.
DON’T
shift
• A shift means that at the same prices, more
people are willing
and
able to purchase that
the
curve!
good.
This is a change in demand, not a change in
quantity demanded
40
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
What if cereal
makes you smarter?
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
41
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
42
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
43
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10 30
$4
20 40
Price of Cereal
$5
4
3
2
$3
30 50
$2
50 70
1
$1
80 100
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
44
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10 30
$4
20 40
Price of Cereal
Increase in Demand
Prices didn’t change but
people want MORE
cereal
$5
4
3
2
$3
30 50
D2
$2
50 70
1
$1
80 100
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
45
Change in Demand
Price of Cereal
Demand
Schedule
Price
$5
Quantity
Demanded
$5
10
$4
20
4
What if cereal
causes baldness?
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
46
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
47
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10
$4
20
Price of Cereal
$5
4
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
48
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10 0
$4
20 5
Price of Cereal
$5
4
3
2
$3
30 20
$2
50 30
1
$1
80 60
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
49
Change in Demand
Demand
Schedule
Price
Quantity
Demanded
$5
10 0
$4
20 5
Price of Cereal
$5
Decrease in Demand
Prices didn’t change but
people want LESS cereal
4
3
2
$3
30 20
$2
50 30
1
$1
80 60
o
D2
10
20
30
40
50
60
Demand
70
Quantity of Cereal
80
Q
50
Change in Demand
Price of Cereal
Demand
Schedule
Price
$5
Quantity
Demanded
$5
10
$4
20
4
What if the price
of MILK goes up?
3
2
$3
30
$2
50
1
$1
80
o
Demand
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
51
What Causes a Shift in Demand?
5 Shifters (Determinates) of Demand:
TRIBE
1.Tastes and Preferences
2. Price of Related Goods
(Substitutes and Complements)
3. Income
4. Number of Consumers (Buyers)
5.Future Expectations
52
• Use the large sticks and ropes along with
the label given to you to form a demand
curve.
• Show the correct movement
53
HEADLINE
WILL
CONSUMERS
BUY MORE OR
LESS U.S.
AUTOS?
IS THERE A  IN
DEMAND OR A 
IN QUANTITY
DEMANDED?
DOES THE DEMAND
FOR U.S. AUTOS
SHIFT TO THE
RIGHT, LEFT, NO
SHIFT?
WHAT IS THE
NEW DEMAND
CURVE FOR THE
U.S. AUTOS?
CONSUMERS’
INCOME DROPS
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Millions of
immigrants enter
the USA
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Price of Foreign
Autos Drop
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Major Cities add
inexpensive bus
lines
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Price of U.S. Autos
Expected
To Rise Soon
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Families Look
Forward To
Summer Vacations
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
U.S. Auto Firms
Launch Effective
Ad Campaign
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
Price of U.S. Autos
Rise
MORE/LESS
 D/QD
RIGHT/LEFT/
NONE
A/ B/ C
54
Friday Closing
• Objective: be able to explain the change in
demand and change in quantity demanded.
Be able to list 7 factors that shift the
demand curve. TRIBE
• Be able to express the minute difference in
how the wording is used with change and be
able to state if it is a movement or a shift.