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AGENDA Thurs 2/2 & Fri 2/3
•Review
Chapter 2 Quiz
•QOD #9: What’s in a headline?
•Review HW
•Demand Shifts
•Reading the Headlines
•HW: Looking for S & D Project
Pg 76 #1-6; pg 84 #2-6
• Study for Demand Quiz
•
• Identify the service/product most closely
associated with each headline.
•Describe what you think will happen to demand of
that item based on the headline.
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Facebook files for $5 billion IPO
Sony sees $2.9 billion loss, new CEO warns of pain
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Texas oysters may soon be back on restaurant menus
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Consumer watchdog recalls HP fax machines
Muhammad Ali trainer Dundee dies at 90
McDonald’s confirms that it’s no longer using ‘pink slime’
chemical in hamburgers
Sugar Should Be Regulated As Toxin, Researchers Say
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A shift to the right indicates that demand has
increased.


buyers are willing and able to purchase more of a good at
all price points
A shift to the left indicates that demand has
decreased.

buyers are willing and able to purchase less of a good at all
price points
Demand  then Demand Curve shifts to the right 
Demand  then
Demand Curve shifts to the left
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Income
Tastes & Preferences (Consumer Attitudes)
Number of Buyers
Price of Related Goods
Price Expectation
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Income – as their income rises, people can buy

more of any particular good
Having the ABILITY does NOT always mean having
the WILLINGNESS to buy more.
normal good – demand
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(CDs, luxury cars)
inferior good – demand
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•
as income
(hot dogs, used cars)
as income
and vice versa

Tastes & Preferences (Consumer attitudes)– a
change in preferences shifts the demand curve

Number of buyers – more buyers = higher
demand

as more people move into an area rent prices go up
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Price of Related Goods – two types of related
goods
substitutes – the demand for one good moves in the same
direction as the price of the other (as P of coffee increases,
the D of tea as a substitute will go up - explain)
 complements – goods that are consumed together (as P of
gas goes up, D of SUVs go down)

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Price Expectations - if consumers expect the
price to increase, they try to buy more now before the
price rises.
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A change in demand refers to a shift in the
demand curve.
A change in income, preferences, price of related
goods, number of buyers, or price expectation
can change demand.
A change in quantity demanded refers to a
movement along a demand curve.
Only price of the good can directly cause a
change in the quantity demanded of a good.
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if buyers' income changed?
if buyers' get tired of chocolate chip cookies?
if the class added more people?
if everyone had $5 extra in their pockets?
if Tiger Woods added his endorsement to
chocolate chip cookies?
if buyers thought cookies enhanced popularity?
if fudge brownies became very expensive?

Elasticity of demand is the relationship
between the percentage change in quantity
demanded and the percentage change in
price expressed as a ratio
Elasticity of
=
Demand
Percentage of change in QD
Percentage change in Price
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Elastic demand is when
the quantity demanded
changes by a greater %
than the % change in
price.
Inelastic demand is
when the quantity
demanded changes by a
smaller % than the %
change in price.
Unit elastic is when the
quantity demanded
changes by the same %
as the % change in
price.

elastic demand – when QD change is greater
than the percentage change in price


( QD  15% > P  10% )
( QD  15% > P  10% )
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inelastic demand – when QD change is less
than the percentage change in price


( QD  5% < P  10% )
( QD  5% < P  10% )
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unit-elastic demand – when QD changes by
the same percentage as price


( QD  10% = P  10% )
( QD  10% = P  10% )
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Number of substitutes

the demand for goods with many substitutes
likely to elastic
 ex:

the demand for goods with very few or no
substitutes is likely to be inelastic
 ex:
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Luxuries v. Necessities

luxuries are goods that people feel they do not
need to survive
 demand is elastic

necessities are good that people feel they need to
survive
 demand is more likely to be inelastic
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Percentage of income spent on the Good


elastic – buyers are more responsive to price
changes in goods when they spend a larger
percentage of their income
inelastic – demand for goods on which
consumers spend a small percentage of income
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Time

as time passes buyers have greater opportunities
to change quantity demanded in response to
price change
Number of
Total Revenue = Price of a Good X
Goods Sold
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Case 1: Elastic Demand and Price Rise

if demand is elastic, a price rise will lead to a
decline in total revenue
 ex:
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Case 2: Elastic Demand and Price Demand

elastic demand + price decline = Total Revenue
will increase
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Case 3: Inelastic Demand and Price Rise

Inelastic demand + price decline = total revenue
 ex:
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any change in price will be equal to, but
move in the opposite direction of, the
change in quantity demanded
there will be no change in total revenue
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Case 4: Inelastic Demand and Price Decline

Inelastic demand + price decline = total revenue
 ex:
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any change in price will be equal to, but move in
opposite direction of, the change in quantity
demanded
there will be no change in total revenue

ex:
Looking for S & D Project
 pg. 76 #1-6; pg 84 #2-6
 Study for Demand Quiz
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
Arnold, R (2001). Economics in our times, 2nd
edition. Chicago, IL: National Textbook
Company .