Transcript Change in Quantity Demanded

Economics 1/3/11
http://mrmilewski.com
• OBJECTIVE: Demonstration of Chapter#3 and begin
examination of demand.
• I. Administrative Stuff
-attendance
-distribution of test
• II. Chapter#3 Test
• III. Journal #11 pt.A
-Read “Profiles in Economics” p.94
-Answer question #1 p.94
• IV. Journal #11 pt.B
-notes on demand
Calculator
• BRING YOUR CALCULATOR THIS
WEEK!!!!
What is demand?
• Demand – the desire, ability, and willingness to
buy a product.
• In a market economy, you compete with other
consumers who demand the same products as you.
• If a lot of people demand the same product, the
price will rise.
• If there are a lot of the same product, and very few
people who demand it, the price will fall.
Demand Schedule
• demand schedule - a
listing that shows the
various quantities
demanded of a
particular product at
all prices that might
prevail in the market
at a given time.
Demand Curve
• demand curve - a
graph showing the
quantity demanded at
each and every price
that might prevail in
the market.
Simplistic view of demand
•
•
•
•
As price increases, demand decreases
As price decreases, demand increases
This is an inverse relationship
When an inverse relationship is graphed, the
slope is negative
Marginal Utility
• Utility – the amount of usefulness or
satisfaction that someone gets from the
extra use of a product
• Marginal utility – the extra usefulness or
satisfaction a person gets from acquiring or
using one more unit of a product
Diminishing Marginal Utility
• The more and more of a product we acquire,
the extra satisfaction we get from using
additional quantities of a product begins to
diminish.
Example #1:
• How much satisfaction would you get from
this?
Example #1:
• How much satisfaction would you get from
this?
Example #1:
• How much satisfaction would you get from
this?
Example #2
Example #2
Example #2
Demand Changes
• Change in quantity demanded –
movement along the demand curve
• Change in demand – shift in the demand
curve
Change in Demand v. Change in
Quantity Demanded
Economics 1/4/11
http://mrmilewski.com
• OBJECTIVE: Examine the factors that affect
demand.
• I. Journal #12 pt.A
-Read “The Business Week Newsclip” p.100
-Answer questions (1-3) p.100
• II. Quiz#7
• III. Return of Chapter#3 Test
• IV. Journal #12 pt.B
-notes on demand changes
• Progress Report Printed Tomorrow!
Demand Changes
• Change in quantity demanded –
movement along the demand curve
• Change in demand – shift in the demand
curve
Change in Quantity Demanded
• When a change in
price causes a change
in quantity demanded.
• In this case, a lower
price leads to an
increase in quantity
demand.
Change in quantity demanded
• Income effect – the change in quantity
demanded because of a change in price
alters consumers’ real income.
• Substitution effect – the change in quantity
demanded because of a change in the
relative price of a product
Example of the income effect
• If the price of a movie drops from $9 to $3,
you might see more films because you have
to work 2/3 less than you did before to see
one movie.
• When the price of goods and services drop
and your income stays the same, you can
buy more. It has a similar effect of a pay
raise if prices remain the same.
Example of the substitution effect
• If Wendy’s raised the price of their $.99
extra value menu to $1.99 you may choose
to substitute Wendy’s food with McDonalds
$1.00 menu.
Change in Demand
• When there is no
change in price, but
there is a change in
the amount demanded
at each and every
price level.
• In this case, price
didn’t change but
more was demanded.
Change in Demand
• Consumer income – as income goes up, the
amount of goods and services you can buy
also goes up
• Consumer tastes – advertising, news
reports, and style changes cause consumers
to demand more or less of a product
• Substitutes – products that can be used in
place of other products i.e. butter/margarine
• Complements – goods that increase our use
of other goods
• Change in expectations – the willingness
to buy more or less of a product based on
future predictions
• Number of consumers – as more
consumers enter the market demand curve
will shift to the right & vice versa.
Change in Demand v. Change in
Quantity Demanded
Complements
• What are the
complements for Tony
the Tiger?
• If Larry’s Foodland
put milk on sale, what
might this do to Tony
the Tiger?
http://americanheritage.us/Images/CAT_966941.jpg
How Milk Prices affect Tony
Milk
Cereal
• The decrease in the price of milk will increase the
demand for cereal.
Substitutes
• What are the
substitutes for this
Fabio endorsed
product?
• What would happen if
Larry’s Foodland
increased the price of
butter?
http://images.amazon.com/images/P/B00032CDPA.01-A3CDPEGSIQM61V._SCLZZZZZZZ_.jpg
How higher butter prices help Fabio
Butter
Margarine
• An increase in the price of butter will increase
demand for the substitute good, “I Can’t Believe
It’s Not Butter”
Economics 1/5/11
http://mrmilewski.com
• OBJECTIVE: Examine demand
elasticity.
• I. Journal #13 pt.A
-Read “The Global Economy” p.102
-Answer questions (1-2) p.102
• II. Journal #13 pt.B
-notes on elasticity
• III. Math Practice
-complete worksheet on demand
• NOTICE: Progress Report Due Friday!
Elasticity
• Elasticity – a measure of responsiveness
that tells how a dependent variable such as
quantity responds to an independent
variable such as price.
• 3 Types of Demand Elasticity
-Elastic Demand
-Inelastic Demand
-Unit Elastic Demand
Elastic Demand
• A small change in price causes a big change
in quantity demanded.
• Slope is less than -1
• Example
-fresh foods (green beans, tomatoes, apples)
Inelastic Demand
• A big change in price causes a small change
in quantity demanded.
• Slope is greater than -1
• Examples:
-table salt
-gasoline
Unit Elastic Demand
• Any change in price causes a proportional
change in quantity demanded.
• Slope equals -1
Total Expenditure Test
• To determine total expenditure, multiply the price
of a product by the quantity demanded for any
point along the demand curve.
• Example:
-at $20 quantity demanded is 5
-formula p x q = total expenditure
20 x 5 = 100
• By selecting two points along the demand curve,
the elasticity of demand can be determined.
Determining Elasticity
Type
Change in
Price
Change in
Expenditure
Elastic
decrease increase
opposite
Less
than -1
Unit
Elastic
decrease No
change
proportional
Equal
to -1
same
Greater
than -1
Inelastic decrease decrease
Movement of Slope
P&E
Elasticity Formulas
• Formula to determine elasticity
% change in Q = elasticity
% change in P
• Formula to determine % change in P or Q
(NEW P or Q) – 1 = decimal equivalent
(OLD P or Q)
• Move decimal two places to the right to get %
change in P or Q.
Example #1
• The manufacturer of a pain medication
reduces the price for medication by 30%
and the percent change in quantity
demanded is 30%. What is the elasticity for
the pain medication?
• % change in Q = 30%
• % change in P = -30%
• Elasticity = -1
Example #2
• A Chinese Buffet increased prices from
$4.95 all you can eat to $5.95 all you can
eat. The number of big eaters went from 58
to 36. What is the elasticity for All You Can
Eat Chinese?
• First we need to figure out the % change in
P & the % change in Q.
Chinese Buffet
• % change in P
• NEW P = 5.95
• OLD P = 4.95
(5.95) – 1 =
(4.95)
• .20
• 20%
• % change in Q
• NEW Q = 36
• OLD Q = 58
(36) – 1 =
(58)
• -.37
• -37%
Chinese Buffet
• % change in Q =-37%
• % change in P =20%
• The elasticity for the
-37% =
Chinese Buffet is
20%
elastic
• Elasticity = -1.85
If you owned the Chinese Buffet, would
you keep the price of the Buffet at 5.95?
• 5.95 x 36 = $214.20
• 4.95 x 58 = $287.10
Example #3
• The managers of a rock band plan to give a
concert in an auditorium that seats 800 people.
They believe that they can sell 600 tickets at $20
each or 800 tickets at $15 each.
• Create a demand schedule and a demand curve for
concert tickets. Then, using the total expenditure
test, determine the elasticity and advise the
managers on how much they should charge for the
concert.
Economics 1/6/11
http://mrmilewski.com
• OBJECTIVE: Working with demand elasticity.
• I. Administrative Stuff
-attendance
-follow ups
• II. Math Practice with Economics
• III. Demand Quiz
• IV. Mindjogger
-video quiz on Chapter#4 Demand
• NOTICE: Progress Report Due Tomorrow!
Economics 1/7/11
http://mrmilewski.com
• OBJECTIVE: Examine gold mines.
• I. Administrative Stuff
-Attendance
• II. Modern Marvels: Gold Mines
-answer questions about film