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12/6 Warm-Up 1. Which economic system includes bartering? 2. In which economic system is the entrepreneur given the incentive to start new businesses and earn profits? DEMAND p. 233 Objective – Describe the determinants of demand through notes and practice examples. REVIEW… • What role does the consumer play in a market economy? • Define Consumer Sovereignty …. • The ___________________ decides what goods and services are available in the market by what they are willing to ____________. • Define Self Interest Motive… • Consumers want to buy things at ________ prices. REVIEW… • What role does the consumer play in a market economy? • Define Consumer Sovereignty …. • The CONSUMER decides what goods and services are available in the market by what they are willing to BUY. • Define Self Interest Motive… • Consumers want to buy things at LOW prices. • Discuss the economy spectrum… • _________________________________________________ DEMAND – think like a consumer! • Demand: the desire to own something and the ability to pay for it DEMAND – think like a consumer! • Demand: the desire to own something and the ability to pay for it • The Law of Demand states that as prices decrease people are willing to buy more. As price increases people are willing to buy less •P D P D (inverse relationship) Graph the Following Demand Curve Using the Demand Schedule Below Price Quantity 5.00 100 10.00 70 15.00 50 • Demand Curve: Graphic representation of the demand schedule. • y-axis = price 20.00 30 25.00 20 35.00 10 • x-axis = quantity demanded 50 45 40 Price $ 35 30 25 20 15 10 5 0 10 20 30 40 50 60 70 Quantity of DVDs Demanded 80 90 100 Demand Curve Price Qty 5.00 100 10.00 70 15.00 50 20.00 30 25.00 20 35.00 10 Price D Quantity Demand • Market Demand Curves • Show how people’s buying habits will change at certain prices ONLY • Show a specific market only • Assume no other factors change (just price) WHY WOULD THERE BE A SHIFT (change) IN DEMAND? WHY WOULD THERE BE A SHIFT (change) IN DEMAND? • Consumer’s income changes: As income increases, demand increases. The money you have, the more demand you will have for goods and services. WHY WOULD THERE BE A SHIFT (change) IN DEMAND? • Consumer Expectations: if shortage is expected, demand increases As consumers expect the availability of goods to decline, they will have a higher demand for these goods. WHY WOULD THERE BE A SHIFT (change) IN DEMAND? • Population Size: Population increases, demand increases When there are more people there will be a higher demand for goods and services. WHY WOULD THERE BE A SHIFT (change) IN DEMAND? • Consumer Taste: If a good becomes popular, demand increases As these items became popular, the demand increased. WHY WOULD THERE BE A SHIFT (change) IN DEMAND? • Change in Price of Related Goods: • Complements: goods bought together (ex. PB&J) • Comp. good price increases, the good’s demand decreases (inverse relationship) • Substitutes: goods used in place of one another (ex. skis and snowboards) • If a substitute price increases, the good’s demand increases (direct relationship) Elasticity of Demand • ELASTICITY of DEMAND: How much the quantity demanded will change if the price rises or falls. • ELASTIC DEMAND: demand that is very sensitive to a change in price • goods that one might stop buying or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT Elasticity of Demand • INELASTIC DEMAND: demand that is not very sensitive to a change in price • goods that you would buy at any price; there are few if any substitutes for these goods. • (milk, gas, prescription drugs) **on a graph this demand curve would be very steep. Practice Graphing Demand p. 234 Graphing Demand • At a price of $1.00, the quantity demanded of slices of pizza is _____10_______ . • At a price of $3.50, the quantity demanded of slices of pizza is __2___________ . • Is this a shift in the demand curve or a movement along the demand curve? Movement along the curve – only price is changing in the first graph Graphing Demand 4.00 Price $ 3.50 3.00 2.50 2.00 1.50 Shift Shift to the left – demand is decreasing 1.00 .50 0 1 2 3 4 D1 D2 5 6 7 8 Quantity of Pizza Demanded 9 10 Graphing Demand a. Is the change in demand, due to the price of hamburgers, a shift in the demand curve or a movement along the demand curve? Shift b. Has the demand for slices of pizza increased or decreased? decreased Are these examples going to cause a movement along the curve or a shift in the demand curve? Graphing Demand • In these circumstances, tell if the demand for a slice of pizza would increase or decrease. CHANGE RESULT IN DEMAND • Consumers make more money Increase / Decrease • Hot dog prices increase Increase / Decrease • Nacho prices decrease Increase / Decrease • The popularity of eating pizza for lunch increases Increase / Decrease • Over-priced drinks are served at the pizza stand Increase / Decrease Are these examples going to cause a movement along the curve or a shift in the demand curve? SHIFT Graphing Demand Are the prices for these goods elastic or inelastic? Write an “e” for elastic and an “i” for inelastic. ______ a. Cars ______ h. Butter ______ b. Candy bars ______ i. CD ______ c. Medicine ______ j. Roses on Valentines Day ______ d. Pepsi ______ k. Electricity ______ e. Movie Ticket ______ f. Turkey on Thanksgiving ______ g. Television Demand Scenarios- Classwork Reading Guide Homework Describe a situation: 1. Where you would see inelastic demand ex. I have inelastic demand for medicine for my cat, because I love her and will buy her medicine even if it’s very expensive. 2. Where you would see elastic demand 3. Where you would get movement on the demand curve ex. I usually only buy 1 bag of chips, but they were on sale so I bought 2. This is movement on the demand curve. 4. Where you would see a shift to the right for the demand curve (give 2 examples) 5. Where you would see a shift to the left for the demand curve (give 2 examples) Homework • 21.3 and 21.4, pages 232